Question

1. A large distributor of oil-well drilling equipment operated over the past two years with EOQ policies based on an annual holding cost rate of 28%. Under the EOQ policy, a particular product has been ordered with a Q* = 120. A recent evaluation of holding costs shows that because of an increase in the interest rate associated with bank loans, the annual holding cost rate should be 31%.

   1. Develop a general expression showing how the economic order quantity changes when the annual holding cost rate is changed from I to I'. Choose the correct answer below.
      

      (i)		(ii)
      (iii)		(iv)

      
      Model (iii)
      • Model (i)
      • Model (ii)
      • Model (iii)
      • Model (iv)
      
      
   2. Using the formula you derived in part a, compute the new economic order quantity for the product. Round your answer to the nearest whole number.
      
      The revised order quantity Q* for the new carrying charge I' is, Q' = .

Answer 1