Question
In: Operations Management
Using the EOQ model, if a firm's order quantity is 500 units and its annual holding...
Using the EOQ model, if a firm's order quantity is 500 units and its annual holding cost is greater than its annual setup cost, then what can we say about the optimal order quantity?
A. Optimal order quantity = 500 units
B. Optimal order quantity < 500 units
C. Optimal order quantity > 500 units
D. Not enough information is given to answer the question
Solutions
Expert Solution
Answer: B. Optimal order quantity < 500 units
Since Holding cost > Set-up cost, the order quantity needs to be reduced such that average inventory decreases and thus Holding cost decrease. Order cost will increase since no. of order increases. Thus order quantity has to be reduced to optimal order quantity.
Thus optimal order quantity < 500
keosha answered 2 years agoRelated Solutions
In inventory management, economic order quantity (EOQ) is the order quantity that minimizes the total holding...
In inventory management, economic order quantity (EOQ) is the
order quantity that minimizes the total holding costs and ordering
costs. It is one of the oldest classical production scheduling
models.
Requirements:
Discuss the EOQ Model using an quantitative example
computation with interpretation of the solution.
2. The B. N. Thayer and D. N. Thaht Computer Company sells a
desktop computer that is popular among gaming enthusiasts. In the
past few months, demand has been relatively consistent, although it
does fluctuate...
Economic Order Quantity (EOQ) is the order quantity that minimizes the total holding costs and ordering...
Economic Order Quantity (EOQ) is the order quantity that
minimizes the total holding costs and ordering costs.
1) What's the impact of a positive lead time on EOQ?
2) Can supply chain managers in fast-fashion industries apply
the EOQ model to manage their inventories? If yes, how? If no,
why?
1. Consider the basic EOQ model (no uncertainty). Optimal order quantity (Q ∗) is 1,800 units....
1. Consider the basic EOQ model (no uncertainty). Optimal order
quantity (Q ∗) is 1,800 units. What is the average inventory level
(I ∗)?
a. 900 units
b. 1,800 units
c. 600 units
d. 1,000 units
e. 3,600 units
2. Consider the basic EOQ model (no uncertainty). Annual holding
cost (AHC) is $2,400. Find annual ordering cost (AOC).
a. Cannot be answered because there is missing information
b. AOC=$0, since there is no uncertainty
c. $1,200, since AOC=AHC/2 at economic...
q1 The continuous review economic order quantity (EOQ) inventory model operates using two model parameters. These...
q1 The continuous review economic order quantity (EOQ) inventory
model operates using two model parameters. These two parameters
are:
Select one:
a.
Q, which represents a fixed order quantity and R, which
represents a variable reorder point quantity of inventory.
b.
Q, which represents a variable order quantity and R, which
represents a fixed reorder point quantity of inventory.
c.
Q, which serves as the amount of inventory that triggers the
release of an order and R, which is the...
Which of the following is NOT an assumption of the traditional economic order quantity (EOQ) model?...
Which of the following is NOT an assumption of the traditional economic order quantity (EOQ) model?
a. Holding and ordering costs are stable and known.
b. Demand is constant and known.
c. Supply lead time is constant and known.
d. Quantity discounts are possible.
Kim’s Nail Salon uses a weighted moving average method to forecast demand. She assigns a weight of 5 to the previous month’s demand, 3 to demand two months ago, and 2 to demand three months ago....
the primary purpose of the Economic Order Quantity (EOQ) model is to: A. Maximize the customer...
the primary purpose of the Economic Order Quantity (EOQ) model
is to:
A. Maximize the customer service level
B. Calculate the reorder point, so that replenishment take place
at the proper time
C. Calculate the optimum safety stock level
D. None of these answers
Which of the following is true of the EOQ model? Note that the optimal order quantity,...
Which of the following is true of the EOQ model? Note that the
optimal order quantity, Q*, will be called EOQ.
If the annual sales, in units, increases by 10%, then EOQ will
increase by 10%.
If the average inventory increases by 10%, then the total
carrying costs will increase by 10%.
If the average inventory increases by 10% the total ordering
costs will increase by 10%.
At any order quantity below the EOQ, then total carrying costs
increase, but...
The Economic Order Quantity (EOQ) model is a classical model used for controlling inventory and satisfying...
The Economic Order Quantity (EOQ) model is a classical model
used for controlling inventory and satisfying demand. Costs
included in the model are holding cost per unit, ordering cost and
the cost of goods ordered. The assumptions for that model are that
only a single item is considered, that the entire quantity ordered
arrives at one time, that the demand for the item is constant over
time, and that no shortages are allowed.
Suppose we relax the first assumption and...
One company operates 300 days per year. The economic order quantity (EOQ) is 250 units. Annual demand is 5000 units.
One company operates 300 days per year. The economic order
quantity (EOQ) is 250 units. Annual demand is 5000 units. The
expected time between orders will be: 15 days20 days1.2 days16.6 daysNone of the above
A company examines its inventory policy and considers using an economic order quantity (EOQ) approach. They...
A company examines its inventory policy and considers using an
economic order quantity (EOQ) approach. They have the following
information about their bestselling model of televisions:
Annual demand - 4000 sets
Current order quantity - 80 sets
Carrying cost - $80.00/set/year
Order cost - $200
Lead time - 6 days
Operating days per year - 300 days
a. What is the current total annual cost (TC) at the current
order quantity?
b. What is the economic order quantity (EOQ)?
c....
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