Question

Pam runs a mail-order business for gym equipment. Annual demand for TricoFlexers is 24,000.

The annual holding cost per unit is

$3.25, and the cost to place an order is $67

**a.** What is the economic order quantity?

The EOQ is 995.

*(Enter your response rounded to the nearest whole
number.)*

**b.** Suppose demand for TricoFlexers doubles, to
48,000.

The EOQ for the new value of demand is

nothing.

*(Enter your response rounded to the nearest whole
number.)*

**c.** The manufacturer of TricoFlexers has agreed
to offer Pam a price discount of $44 per unit $63 rather than $67
if she buys 1,000. Assuming that annual demand is still 24,000,how
many units should Pam order at a time?

Pam should order _____ units at a time. (*Enter* *your
response rounded to the nearest whole number)*

Answer #1

Given:

- Demand (D) =24000 units/year
- Setup Cost (S) = $ 67
- Holding Cost (H)= $3.25 per unit per year

a) EOQ (Q) = ((2DS)/H)^0.5 = ((2*24000*67)/3.25)^0.5 = 994.75 = 995

b) If new Demand = 48000

EOQ (Q) = ((2DS)/H)^0.5 = ((2*48000*67)/3.25)^0.5 = 1406.79 = 1407

The EOQ of the new order increases as demand increases

c) If Setup Cost (S) = $ 63

EOQ (Q) = ((2DS)/H)^0.5 = ((2*24000*63)/3.25)^0.5 = 964.60 = 965

There will be a slight decrease In the EOQ value

If D = 8 500 per month, S = $47 per order, and H = $2.00
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