Suppose the weekly demand for an item is 3,000 units. It costs 13.7% of the value of the item to hold one for a year. Our supplier delivers pallets of 100 units to us, each one costing $2,000. They are capable of delivering 8 pallets per day. The cost of a delivery (ordering, contracting, physical delivery and receipt) is $350 per order. The business operates all 365 days of the year. A student solves this problem as follows:
EOQ = (2*3,000*2000/(0.137*350))0.5 = 500 units per day (rounded to the nearest whole number)
What mistakes did the student make? Explain.