Question

Your optimal economic order quantity (EOQ) size is 80 units. Suppose the truck holds 90 units at full capacity, however. If you order 90 units instead of 80 in each order, how much will your costs increase?

Answer 1

Ordering 90 units instead of the EOQ of 80 will increase holding costs, but without exact cost figures, we can't calculate the precise cost increase.

Step-by-step explanation:

Ordering 90 units instead of the optimal economic order quantity (EOQ) of 80 units will result in an increase in costs by $C, where
`\( C = \frac{{Q * H}}{{2}} * \left( \frac{{\frac{{90}}{{80}}}}{{\frac{{90}}{{80}} - 1}} \right) \)`.

In the EOQ model, the total inventory cost (\( TC \)) is given by \( TC =
`\frac{{D * Q}}{{2}} + \frac{{D}}{{Q}} * S \),` where:

- \( D \) is the demand in units,

- \( Q \) is the order quantity,

- \( H \) is the holding cost per unit, and

- \( S \) is the ordering cost.

The formula
`\( C = \frac{{Q * H}}{{2}} * \left( \frac{{\frac{{90}}{{80}}}}{{\frac{{90}}{{80}} - 1}} \right) \)` calculates the additional holding cost incurred when ordering 90 units instead of the EOQ of 80 units. This is based on the fact that the holding cost increases when ordering beyond the EOQ due to excess inventory.