Consider a retailer that sells a single type of product and all assumption of the basic economic order quantity model are valid. The annual demand is 5000 units. Each order release to the supplier incurs a fixed $50 cost and the annual holding cost is $8 per unit. The store manager has already determined the optimal order quantity for this product. 

(a) If we choose to use an order quantity of q = 350 units, what would be the percentage of increase in the optimal total of ordering and holding costs (the total of ordering and holding costs is also called the dependent cost component)? 

(b) If the store manager can tolerate only a 2% increase from the optimal total of ordering and holding costs, determine an interval for order quantities that satisfy this tolerance.

Answer rating: 100% (QA)

Answer a Economic Order Quantity EOQ 2xAXOH where A Annual Demand5000 Oordering cost50 HHo... View the full answer