Answered: Should the company continue to order…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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[Question text] The Swank Furniture Company is trying to determine the optimal order quantity for rocking chairs. Annual sales are 1,200 units, and the retail price is RM40 per unit. The carrying cost is 20 % of its price. It costs RM20 to prepare and receive an order. The company currently order 100 units per order with a total inventory cost of RM660. The calculated economic order quantity (EOQ) equals 77 units. Should the company continue to order 100 units every time it places an order or change the quantity to the calculated EOQ?

Select one:

A. Use the calculated EOQ as the company will pay only RM40.

B. Continue to order 100 units as there will be no differences in total cost.

C. Continue to order 100 units and enjoy an RM40 cash discount.

D. Use the calculated EOQ as the total cost will be reduced by RM40.

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