Henry Crouch’s law office has traditionally ordered ink refills 60 units at a time. The firm estimates that carrying cost is 40% of the $10 unit cost and that annual demand is about 240 units per year. The assumptions of the basic EOQ model are thought to apply.
a. For what value of ordering cost would its action be optimal?
b. If the true ordering cost turns out to be much greater than your answer to (a), what is the impact on the firm’s ordering policy?
