Question

a manufacturer is contemplating a switch from buying to producing a certain item. setup cost would be the same as ordering cost. the production rate would be about double the usage rate. compared to the eoq, the maximum inventory would be: question 11 options: a) greater than the eoq. b) equal to the eoq. c) smaller than the eoq. d) greater than or equal to the eoq. e) smaller than or equal to the eoq.

Answer 1

When a manufacturer switches from buying to producing an item with a production rate double the usage rate, the maximum inventory level will be smaller than the EOQ.

Step-by-step explanation:

The question pertains to inventory management and is asking about how the maximum inventory level would compare when a manufacturer switches from buying to producing an item, with a production rate twice that of the usage rate. According to the Economic Order Quantity (EOQ) model, when the production rate is higher than the consumption rate, this generally leads to a situation where inventory accumulates until production stops (when inventory reaches a maximum level), and then it starts getting used up. In this case, the maximum inventory level would be smaller than the EOQ, because production happens concurrently with consumption, hence inventory doesn't pile up as much before it begins to get depleted.