To determine the optimal order quantity, we use the Economic Order Quantity (EOQ) formula, which is given by:

$EOQ = \sqrt{\frac{{2 \times D \times S}}{{H}}}$

where:

• $D$ is the annual demand (3,600 units),
• $S$ is the cost per order ($25),
• $H$ is the annual holding cost per unit ($10).

Calculations

Substitute the values:

$EOQ = \sqrt{\frac{{2 \times 3600 \times 25}}{{10}}}$

Calculating inside the square root:

$EOQ = \sqrt{\frac{{180000}}{{10}}}$

$EOQ = \sqrt{18000} \approx 134$

Thus, the optimal order quantity is approximately 134 units.

Would you like more details on how EOQ helps optimize inventory costs?

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Here are some related questions to further explore this concept:

1. What happens to the EOQ if the ordering cost increases?
2. How does a decrease in the annual holding cost affect the EOQ?
3. Can EOQ change if the demand fluctuates throughout the year?
4. How does EOQ impact the total cost in an inventory management system?
5. What are some limitations of using EOQ in inventory management?

Tip: Always check the units for each parameter in the EOQ formula to ensure accuracy in your calculations.