Final answer:
Without specific values for demand, ordering cost, and holding cost, it is not possible to provide the exact percentages by which the order quantity and total relevant costs will be too large. The misestimations will affect the Economic Order Quantity calculation, resulting in higher order quantities and total costs.
Step-by-step explanation:
To answer the question, we need to use the Economic Order Quantity (EOQ) formula which is: EOQ = √((2DS)/H), where D is the demand, S is the setup or ordering cost, and H is the holding cost. When a company overestimates its annual demand for a product by 50%, the demand (D) used in the EOQ formula would therefore be 150% of the actual demand. Similarly, if the ordering cost (S) is underestimated by 20%, the actual cost used in the EOQ would be 80% of the true cost. These miscalculations will affect both the order quantity and total relevant costs.
Order Quantity Too Large
The overestimated demand increases the EOQ, while the underestimated ordering cost decreases it. The net effect on the EOQ due to these changes would need to be calculated using the altered values of D and S in the EOQ formula. Without specific values for D, S, and H, we cannot provide a numerical percentage by which the order quantity will be too large.
Total Relevant Costs Too Large
Similarly, the total relevant costs, which include ordering costs, holding costs, and purchase costs, will be incorrect due to the inaccurate EOQ. The overestimated order quantity will lead to higher holding costs, and the underestimated ordering cost impacts the total cost calculation. Again, without the specific cost figures, we cannot provide a precise percentage increase in the total relevant costs.