Question

Jonathon Maine is the inventory control manager of the Aucetics Company. In 2020, the annual demand for product X was 7500 units, and the order quantity Q was set to be 535 units per order. Jonathon Maine is planning for next year inventory. The annual demand of product X is expected to remain the same (7500 units per year). Utilizing the EOQ model, if Jonathon changes the order quantity Q to 680 units per order, the total annual ordering cost wil:__________

Answer 1

decrease

Step-by-step explanation:

The ordering quantity for the current year is 535 units, this means that the company must make 7,500 / 535 = 14.02 orders.

If the ordering quantity increases to 680, the number of orders will be 7,500/ 680 = 11.03.

Regardless of how much it costs to place an order, the number of orders made is 3 less than in the previous year, therefore, the ordering costs must decrease.