At a large training school, supplies of classroom materials are controlled centrally. During the school year, demand for dry-erase markers averages markers 300 per week, with a CV of 20% (demand is normally distributed). Each marker costs $1.25. The fixed cost to place an order is $25. Assume that the school operates all year, including the summer (52 weeks). Based on the assumptions present in the classical EOQ model, compare
(a) the annual cost of ordering 900 markers every third week to
(b) the annual cost of ordering based on the optimal order quantity. How much money would be saved if the classical EOQ model were used to determine the order quantity (based on the assumptions made in the classical EOQ model)?
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