What will be the effect on average inventory if Jack experiences a 50% decrease in demand and a doubling of the ordering costs.
A. Average inventory will double
B. Average inventory will be reduced by 50%
C. Average inventory will be reduced by 33%
D. Nothing, it will stay the same
HINT:
EOQ = sqrt((2RS/kC). Now, double order costs (Set-up Cost) i.e. Multiply S by 2) and cut demand (R ) by ½. Note if EOQ changes or not.
Relate Average Inventory to EOQ by using formula Average Inv.= EOQ/2