Henry Crouch\'s law office has traditionally ordered ink refills 65 units at a t

Question

Henry Crouch's law office has traditionally ordered ink refills 65 units at a time. The firm estimates that carrying cost is 35% of the $11 unit cost and that annual demand is about 235 units per year. The assumptions of the basic EOQ model are thought to apply. For what value of ordering cost would its action be optimal? For what value of ordering cost would its action be optimal? Its action would be optimal given an ordering cost of per order (round your response to two decimal places). If the true ordering cost turns out to be much less than your answer to part (a), what is the impact on the firm's ordering policy? The order quantity should not be changed. The order quantity should be increased. The order quantity should be decreased.

Explanation / Answer

EOQ =65= suare root ( 2*235* ordering cost/(0.35*11))

Ordering cost = (65)^2 *3.85/(2*235) = $34.61

Even if the ordering costs are much less than the optimal, the order qty may not be altered as it result in increased inventory cost.

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