Question

In an ideal inventory control system, the economic size for a part is 1000. If the annual demand for the part is doubled, the new economic lot size required will be:
1. 100√2
2. 500
3. 1000
4. 1000√2

Answer 1

Correct Answer - Option 4 : 1000√2

Concept:

Economic order quantity (EOQ) is represented with Q*

Q* = \(\sqrt {\frac{{2D{C_0}}}{{{C_h}}}} \)

Where D is annual demand, C₀ is ordering cost, C_h is holding cost

Calculation:

Given:

Q^* = 1000

\(\sqrt {\frac{{2D{C_0}}}{{{C_h}}}} \) = 1000

When demand D will be doubled then the new economic order quantity will be:

Q^* = \(\sqrt {\frac{{2\left( {2D} \right){C_0}}}{{{C_h}}}} \)

=\(\sqrt {\frac{{2D{C_0}}}{{{C_h}}}} \)× √2

= 1000 × √2

= 1000√2