Answer:
The optimal order size would be 2,000
Explanation:
The Economic Orded Quantity minimize the cost of inventory, considering the annual demand, the cost of holding the inventory in the company and the cost for each order.
[tex]Q_{opt} = \sqrt{\frac{2DS}{H}}[/tex]
D = annual demand =40,000
S= setup cost = ordering cost =125
H= Holding Cost =2.50
[tex]Q_{opt} = \sqrt{\frac{2\times40,000\times125}{2.50}}[/tex]
[tex]Q_{opt} =2,000[/tex]
