Questions
Q 1: If the Economic Order Quantity (EOQ) model is used to order material, which of the following represents the total annual variable cost that includes the annual costs of ordering and inventory holding?
Please note the following symbols.
D: Annual Demand, S: Ordering Cost/Order and H: Inventory holding cost per unit per year.
Q 2: A company is using the Economic Order Quantity (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 total annual variable cost? The annual variable cost includes the annual ordering cost and annual inventory holding cost?
a) It doubles.
b) It increases by 41.42%.
c) It remains the same.
d) The impact depends upon the value of the ordering cost.
e) It quadruples (increases by 400%).