Reviewing their inventory strategy to optimize costs

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Question

A manufacturing company produces custom lighting fixtures. The management is reviewing their inventory strategy to optimize costs. The company currently faces annual demand for a specific fixture model of 8,000 units. The ordering cost per order is $150, and the holding cost per unit per year is $0.05. The company aims to minimize the total ordering costs and total purchasing cost. They are considering adjusting these costs to find the optimal order quantity. If the holding cost per unit increases from $0.05 to $0.10, how should the company adjust its order quantity to minimize the sum of those costs?

Decrease the order quantity to reduce the total holding cost, as it becomes more expensive to hold inventory.

Increase the order quantity to take advantage of the lower ordering frequency required, thus saving on ordering costs.

Keep the order quantity the same, as the increase in holding cost does not impact the optimal order quantity calculation.

Calculate a new EOQ based on a potential decrease in ordering costs to see if it compensates for the higher holding costs.

Reference no: EM133828767

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