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What will be the effect on average inventory if Jack experiences a 50% decrease in demand and a doubling of the ordering costs.

A. Average inventory will double

B. Average inventory will be reduced by 50%

C. Average inventory will be reduced by 33%

D. Nothing, it will stay the same

HINT:

EOQ = sqrt((2RS/kC). Now, double order costs (Set-up Cost) i.e. Multiply S by 2) and cut demand (R ) by ½. Note if EOQ changes or not.

Relate Average Inventory to EOQ by using formula Average Inv.= EOQ/2

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Operation Management, Management Studies

Category:- Operation Management
Reference No.:- M92279883

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