You manage inventory and ordering using EOQ for a retailer that sells a single product. The demand is d units per month. Your fixed order cost is f and you pay c per unit to your supplier. You calculate holding cost based on the variable order cost and an interest rate of i. For each of the following questions, focus only on operational costs (i.e. fixed plus holding costs.) Mark one answer to each question below:
a) Suppose your fixed cost increases by 21%, but you keep ordering the same amount as before the cost’s increase. By keeping your original order quantity, how much more are you paying than the optimum?
i) This cost is optimal. ii) 0.15%. iii) 0.45%. iv) 1.1%. v) 10%.
b) Suppose you start ordering the new optimal quantity under the fixed cost’s increase. How much did your operational cost change when compared with the situation before f changed?
i) Decrease by 10% ii) Decrease by 5% iii) No change. iv) Increase by 5%. v) Increase by 10%.
c) In addition to the 21% increase in your fixed costs, suppose that your interest rate also increases by 21%. If you re-optimize your order quantity, what is your operational cost increase compared with your cost before f and i increased?
i) No change. ii) 5%. iii) 10%. iv) 21%. v) 25%.
d) In the setting from (c), how much does your order quantity increase, compared to the quantity before f and i increased?
i) No change. ii) 5%. iii) 10%. iv) 21%. v) 25%.