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A large distributor of oil-well drilling equipment operated over the past two years with EOQ policies...

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Finance

  1. A large distributor of oil-well drilling equipment operated overthe past two years with EOQ policies based on an annual holdingcost rate of 28%. Under the EOQ policy, a particular product hasbeen ordered with a Q* = 120. A recent evaluation ofholding costs shows that because of an increase in the interestrate associated with bank loans, the annual holding cost rateshould be 31%.

    1. Develop a general expression showing how the economic orderquantity changes when the annual holding cost rate is changed fromI to I'. Choose the correct answer below.
      (i)(ii)
      (iii)(iv)

      Model (iii)
      • Model (i)
      • Model (ii)
      • Model (iii)
      • Model (iv)

    2. Using the formula you derived in part a,compute the new economic order quantity for the product. Round youranswer to the nearest whole number.

      The revised order quantity Q* for the new carrying chargeI' is, Q' = .

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