Computed the eoq for an inventory item

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Reference no: EM131741524

You just computed the EOQ for an inventory item using the (Q,R) system, and your answer is Q = 420 units. The item in question comes in boxes of 100, so you will need to round your answer. Which of the following presents the more valid logic:

(a) Round the answer down to Q = 400, since that is the closest to the optimal value Q = 420 which minimizes average ordering + carrying costs.

(b) Round the answer up to Q = 500, because Q = 400 will on average leave you with shortage of 20 units (compared to EOQ = 420) in each ordering cycle.

EXPLAIN YOUR ANSWER! This means explain why the one you chose is correct, and why the one you did not choose is incorrect. (Note: one of the two statements above is an incorrect representation of reality, so do not answer based on what is stated above, but based on what you know is the correct reality.)

Reference no: EM131741524

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