Pam runs a mail-order business for gym equipment. Annual demand for TricoFlexers
ID: 352304 • Letter: P
Question
Pam runs a mail-order business for gym equipment. Annual demand for TricoFlexers is 13 comma 50013,500. The annual holding cost per unit is $3.003.00, and the cost to place an order is $5555.
a. What is the economic order quantity?
The EOQ is ___. (Enter your response rounded to the nearest whole number.)
b. Suppose demand for TricoFlexers doubles, to 27,000.
The EOQ for the new value of demand is ____. (Enter your response rounded to the nearest whole number.)
Does the EOQ also double?
A. Yes, the EOQ doubles because the EOQ is directly proportional to the demand.
B. No, the EOQ does not double as the annual demand doubles. The EOQ is inversely proportional to the square-root of the demand.
C. No, the EOQ does not double as the annual demand doubles. The EOQ increases by the square-root of the product of two-times the demand times ordering cost, divided by holding cost.
D. No, the EOQ does not double as the annual demand doubles. The EOQ is inversely proportional to the demand.
Explanation / Answer
Answer to question a :
Given are the following data :
Annual demand = D = 13,500
Annual holding cost = Ch = $3
Order placement cost = Co = $55
The EOQ is = Square root ( 2 x Co x D/ Ch ) = Square root ( 2 x 55 x 13500 / 3 ) = 703.56 ( 704 rounded to nearest whole number )
THE EOQ IS = 704GYM EQUIPMENT
Answer to question b :
The revised demand = D1 = 27000
The revised EOQ = Square root ( 2 x 55 x 27000/ 3 ) = 994.98 ( 995 rounded to nearest whole number )
THE EOQ FOR THE NEW VALUE OF DEMAND = 995 GYM EQUIPMENT
Answer :
THE EOQ IS = 704GYM EQUIPMENT
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