A retailer sells about 5000 units per year of a particular item. The following data have been found for this item:
A = $100/order, c = $2/unit, h = $0.56/ unit yr
The retailer is not using an order quantity of 500 units. An analyst observes that savings could be realized by using the EOQ. The manager says to forget about mathematics, he has a way of reducing the order cost to only $25/ order. He argues for doing this and retaining the current order quantity. Which option would product better results.
(1) retaining the original cost but using EOQ
(2) using older quantity with the new order cost of $25/order? Explain answers completely"