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In: Economics

A company is using the EOQ model to manage its inventories. Suppose its annual demand doubles,...

A company is using the EOQ model to manage its inventories. Suppose its annual demand doubles, while the ordering cost per order and inventory holding cost per unit per year do not change. What will happen to the EOQ?

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Expert Solution

EOQ model is the economic order quantity that used to minimise the ordering and holding costs... There are some cost for each unit for holding inventories which is known as holding cost... If a company is using the EOQ model manage to manage their inventories, the annual demand doubles but the holding and ordering costs does not change, EOQ will be greater... This can be explained with the help of EOQ formula ..

In the above example, we can say that if D doubles and costs remain the same, EOQ will be higher compared to initial economic order quantity..Here, initial stage it would be 400 units and now it is 566 units ...

Rahul Sunny answered 9 months ago
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