Scenario 9.5
Tom Bergman, owner and operator of the Earplug Superstore, is reviewing the costs associated with the store's best-selling hearing aid, the BZ15. The data available to Dr. Bergman concerning this device follow.
Demand = 25 units/week
Order cost = $3/order
Holding cost = $1.50/unit/year
The Earplug Superstore operates 52 weeks a year.
-Use the information in Scenario 9.5. Tom cuts the ordering cost in half by implementing a streamlined processing system. How many fewer units should he now order each time he places an order?
A) less than or equal to 10 units
B) greater than 10 but less than or equal to 15 units
C) greater than 15 but less than or equal to 20 units
D) greater than 20 units

Question

Quizplus · Accepted Answer

The Economic Order Quantity (EOQ) formula is $\sqrt{\frac{2DS}{H}}$, where $D$ is demand, $S$ is the ordering cost, and $H$ is the holding cost. Cutting the ordering cost in half reduces the EOQ, which means fewer units should be ordered each time. However, the reduction in the EOQ does not directly translate to the number of units reduced per order; it affects the square root of the order cost in the formula. The question asks for how many fewer units should be ordered, not the new EOQ. The reduction in the EOQ due to halving the ordering cost will not be directly proportional to the number of units, but it will significantly affect the order size, likely leading to ordering significantly fewer units, hence the confusion in interpreting the question as it doesn't provide a direct calculation for fewer units but implies a significant change due to the cost reduction.

Scenario 9.5 Tom Bergman, Owner and Operator of the Earplug Superstore, Is