Answer:
Total cost = Sum of ordering costs + Sum of holding costs
Total cost = DCo + QH
Q 2
Where
D = Annual demand
Co = Cost of ordering per order
Q = EOQ
H = Cost of holding per item annually
D = 40,000 units
Co = $48
H = 18% x $8.00 = $1.44
EOQ = √(2DCo)/H
EOQ = √(2 x 40,000 x $48)/$1.44
EOQ = 1,633 units
Explanation:
EOQ is derived by multiplying two times the annual demand and ordering cost, which is divided by holding cost per item on an annual basis. The annual holding cost is determined as the product of the holding rate and unit cost.
<span>To assess if the new development will lead to increased sales in relation to price elasticity of goods, one must evaluate the effect a reduction in price will have on demand for the product being sold and how significantly a decrease in price will increase demand proportionally.</span>
