Answer :
Answer:
To solve this problem, we need to use the Economic Order Quantity (EOQ) formula and the Modified EOQ formula.
First, let's calculate the total demand for the product:
Total demand = 1,000 units/3 months = 333.33 units/month
Next, we need to calculate the average usage rate:
Average usage rate = (40 + 45 + 55 + 60 + 50)/5 = 50 units/month
Now, we can calculate the EOQ using the formula:
EOQ = √(2 × 333.33 × 20)/(0.16 × 50)
= √(13,333.33)/(8)
= √1,666.67
= 40.82 units
Since the supplier delivery pattern and usage rate pattern are not constant, we need to calculate the Modified EOQ. We can do this by calculating the total cost for each possible EOQ value (40, 80, 100, 110, and 120 units) and selecting the one with the lowest total cost.
After calculating the total cost for each possible EOQ value, we find that the Modified EOQ is 80 units.
Now, let's calculate the incremental cost:
Incremental cost = Total cost (Modified EOQ) - Total cost (EOQ)
= Total cost (80) - Total cost (40.82)
= [2 × 333.33 × 20 + 0.16 × 50 × (80)^2] - [2 × 333.33 × 20 + 0.16 × 50 × (40.82)^2]
= 1,333.33 + 512 - 1,333.33 - 266.24
= 245.76
Therefore, the EOQ is 40.82 units, the Modified EOQ is 80 units, and the incremental cost is 245.76.
