Flint Company uses 9,000 units of part AK-4 each year. To gain better control over its inventory, the company is anxious to determine the economic order quantity (EOQ) for this part.

Required
1. The company has determined that the cost to place an order for the part is £30, and it has determined that the cost to carry one part in inventory for one year is £1.50. Compute the EOQ for the part.
2. Assume that the cost to place an order increases from £30 to £40 per order. What will be the effect on the EOQ? Show computations.

3. Assume that the cost to carry a part in inventory increases from £1.50 to £2.00 per part. (Ordering costs remain unchanged at £30 per order.) What will be the effect on the EOQ? Show computations.
4. In Requirements 2 and 3 above, why does an increase in cost cause the EOQ to go up in one case and to go down in the other?