You manage inventory and ordering for a retailer that sells a single product. You review inventory continuously, and demand is steady enough that you can consider it a constant rate. Your holding cost is $1 per unit per month. You currently use EOQ to determine your order quantity, and meet all demand from inventory. However, you are considering allowing backorders; you think a backorder would cost $9 per unit per month in customer goodwill. Your orders are fulfilled instantly. Please select one of the below answers for the following questions.

ANSWERS

i) decrease by 10%

ii) decrease by 5%

iii) not change

iv) increase by 5%

QUESTIONS

If you keep your current order quantity but optimize the reorder point with respect to holding and backorder costs, your maximum inventory should....?

If you keep your current order quantity but optimize the reorder point with respect to holding and backorder costs, your order cycle (time between consecutive orders) should...?

If you re-optimize the order quantity to consider backorders, the original order quantity should...?

If you re-optimize the order quantity to consider backorders, the original cost per month (excluding any variable order costs) should...?

v) increase by 10%