Daniel Trumpe has computed the EOQ for a product he sells to be 400 units.However,due to recent events he has a cash flow problem.Therefore,he orders only 100 units each time he places an order.Which of the following is true for this situation?
A)Annual ordering cost will be lower than annual holding cost.
B)Annual ordering cost will be higher than annual holding cost.
C)Annual ordering cost will equal annual holding cost.
D)Annual ordering cost will be unaffected by the order policy change.
E)Nothing can be determined without more information.

Question

Quizplus · Accepted Answer

Since Daniel is ordering more frequently, he will incur higher ordering costs (such as placing orders, receiving shipments, inspecting goods, etc.) but will have lower holding costs (such as storage, insurance, obsolescence, etc.) This means that the annual ordering cost will be higher than the annual holding cost, leading to a suboptimal inventory management policy.

Daniel Trumpe Has Computed the EOQ for a Product He