Question

Using the simple order quantity model in an inventory control problem, Kathy calculated the order quantity to be 1,000 units. In a review, she found out that the demand is actually double that of the quantity she had used and the holding cost is only half that of the value she used. The new economic order quantity using the correct data will

Answer 1

Answer:

B. 2,000

Explanation:

Let us assume the demand be D

Ordering cost be O

And, the holding cost be H

As we know that

$EOQ = \sqrt{\frac{2\times D\times O}{H} }$

Now as per the question

$1,000 = \sqrt{\frac{2\times D\times O}{H} }$

Now in the case when the demand is double and holding cost is half

So,

$EOQ = \sqrt{\frac{2\times (2\times D)\times O}{H \div 2} }$

$EOQ = \sqrt{\frac{4\times 2\times D\times O}{H} }\\\\EOQ = 2\times \sqrt{\frac{2\times D\times O}{H} }$

Now

= 2 × 1,000

= 2,000