Suppose a company has 1000 units of a raw material part on hand. If 750 of these units are routed into production, should the company place an order to stock up on more of these parts? In order to answer this question, determine the economic order quantity (EOQ) for this part, assuming that the following are true:
- The company plans to use 10,000 units during the coming year.
- The company orders this part in lots of 1000 units, and each order placed carries a processing cost of $2.50.
- Each unit of inventory carries an annual holding cost of $6.40.