Answer C: Increased by 40%. Explanation Suppose annual demand (D) = 2000 units F

ID: 372980 • Letter: A

Question

Answer C: Increased by 40%.

Explanation

Suppose annual demand (D) = 2000 units

Fixed cost per order (K) = $4.5

Annual holding cost per unit (h) = $5.5

Economic Order Quantity= square root of (2DK/h)

= square root of (2*2000*4.5/5.5)

= square root of (3272.73)

=57.21

If the annual demand (D) is increased by 100% that means the new figure of annual demand is = 4000 units

So the EOQ*= square root of (2DK/h) -------here D is 4000 units rest all are same

= square root of (2*4000*4.5/5.5)

= square root of (6545.45)

=80.90

The difference between the EOQ with 4000 units and 2000 units is

EOQ*-EOQ= increase in EOQ

80.90-57.21=23.69

The calculate the percentage= (23.69/57.21) * 100

0.41*100

41% increase approx. So its nearby 40% the right answer is option C 40%

If annual demand increases by 100%, the average inventory held in a system governed by the

EOQ model is:

A) decreased by 50%. C) increased by 40%.

B) decreased by 100%. D) increased 100%.

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