New England Charm, Inc. specializes in selling scented candles. The company has established a policy of reordering inventory every 30 days. A recently employed MBA has considered New England's inventory problem from the EOQ model viewpoint. If the following constitute the relevant data, how does the current policy compare with the optimal policy?
Ordering cost= $10 per orderCarrying cost= 20% of purchase pricePurchase price= $10 per unitTotal sales for year= 1,000 unitsSafety stock= 0
A. Total costs will be the same, since the current policy is optimal.
B. Total costs under the current policy will be less than total costs under the EOQ by $10.
C. Total costs under the current policy exceed those under the EOQ by $3.
D. Total costs under the current policy exceed those under the EOQ by $10.
E. Cannot be determined due to insufficient information.
Answer: C
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