Question

Henry Crouch's law ofice has traditionally ordered ink refills 65 units at a time. The firm estimates that carrying cost is 45% of the $12 unit cost and that annual demand is about 240 units per year. The assumptions of the basic EOQ model are thought to apply. For what value of ordering cost would its action be optional?

a) For what value of ordering would its action be optional? Its action would be optimal given an ordering cost of \$---- per order ?
b) If the true ordering cost turns out to be much greater than your anser to part (a) what is the impact on the firm's ordering policy?

Answer 1

In the given scenario, Henry Crouch's law office traditionally orders ink refills in batches of 65 units. To determine the optimal ordering cost, we can use the Economic Order Quantity (EOQ) model.

Step-by-step explanation:

In the given scenario, Henry Crouch's law office traditionally orders ink refills in batches of 65 units. To determine the optimal ordering cost, we can use the Economic Order Quantity (EOQ) model. EOQ is calculated using the formula:

EOQ = sqrt((2 * Annual Demand * Ordering Cost) / Carrying Cost)

Substituting the given values, EOQ = sqrt((2 * 240 * Ordering Cost) / 0.45).

To find the value of ordering cost for which the action would be optimal, we need to solve this equation. Unfortunately, the value of ordering cost is missing from the question, so we cannot provide a specific answer. However, once the ordering cost is known, the optimal action can be determined by calculating the EOQ.

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