(See problem 12 for basic data. )In the second year, Howe Corporation finds it can reduce ordering costs to $I per order but carrying costs stay the same at $1.008 per unit a. Recompute a, b, c, and d in Problem 10 for the second year b. Now compare years one and two and explain what happened Solution: Howe Corp( Continued) 2SO2×126,000×$1 EOQ $1008 $252,000 =√250,000=500 units $l.008 126000 units/500 units=252 orders EOQ/2=500/2=250 units(average inventory) 252 orders x Sl ordering cost =$252 250 units x $1.008 carrying cost per unit 252 Total costs $504 b. The number of units ordered declines 50%. while the number of orders doubles The average inventory and total costs both decline by one-half. Notice that the total cost did not decline in equal percentage to the decline in ordering costs. This is because the change in EOQ and other variables(2)is proportional to the square root of the change in ordering costs(4) S-255 Copyright C2005 by The McGra-Hill Companies, Inc.Copyright © 2005 by The McGraw-Hill Companies, Inc. S-255 7-13. (See problem 12 for basic data.) In the second year, Howe Corporation finds it can reduce ordering costs to $1 per order but carrying costs stay the same at $1.008 per unit. a. Recompute a, b, c, and d in Problem 10 for the second year. b. Now compare years one and two and explain what happened. Solution: Howe Corp. (Continued) 250,000 500 units $1.008 $252,000 $1.008 2 126,000 $1 C 2SO a. EOQ = = =   = = 126,000 units/500 units = 252 orders EOQ/2 = 500/2 = 250 units (average inventory) 252 orders x $1 ordering cost = $252 250 units x $1.008 carrying cost per unit = 252 Total costs = $504 b. The number of units ordered declines 50%, while the number of orders doubles. The average inventory and total costs both decline by one-half. Notice that the total cost did not decline in equal percentage to the decline in ordering costs. This is because the change in EOQ and other variables (½) is proportional to the square root of the change in ordering costs (¼)