Scenario 9.3
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 Mr.Bergman concerning this device follow.
Demand = 25 units/week
Order cost = $3/order
Holding cos = $1.50/unit/year
The Earplug Superstore operates 52 weeks a year.
-Use the information in Scenario 9.3.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?

Question

Quizplus · Accepted Answer

To determine how many fewer units should be ordered with the decreased ordering cost, we need to calculate the optimal order quantity using the new ordering cost of $1.50 per order (half of the original $3 per order).

Using the economic order quantity (EOQ) formula:

EOQ = √[(2DS)/H]

where:
D = annual demand = 25 units/week x 52 weeks = 1300 units/year
S = ordering cost = $1.50
H = holding cost = $1.50/unit/year

EOQ = √[(2 x 1300 x $1.50)/$1.50] = √2600 = 50.99

Since it's not possible to order a fraction of a unit, we should order 50 units at a time with the new ordering cost.

To find out how many fewer units should be ordered with the decreased ordering cost compared to the original ordering cost, we need to compare the optimal order quantities calculated for each scenario.

Using the original order cost of $3:

EOQ = √[(2 x 1300 x $3)/$1.50] = √7800 = 88.39

Therefore, the difference in units ordered is: 
88.39 - 50.99 = 37.4 units

Rounding down to the nearest whole number, the answer is D) greater than 20 units.

Scenario 9.3 Tom Bergman,owner and Operator of the Earplug Superstore,is Reviewing the Reviewing