1.Using the EOQ methods outlined in the chapter, how many kegs of nails should Low order at one time if his annual volume is 5000 kegs?
2. Assume all conditions in Question 1 hold, except that Low’s supplier now offers a quantity discount in the form of absorbing all or part of Low’s order-processing costs. For orders of 1200 or more kegs of nails, the supplier will absorb all the order-processing costs; for orders between 500 and 1199 kegs, the supplier will absorb half. What is Low’s new EOQ? (It might be helpful to lay out all costs in tabular form for this and later questions.)
3. Temporarily, ignore your work on Question 2. Assume that Low’s warehouse offers to rent Low space on the basis of the average number of kegs Low will have in stock, rather than on the maximum number of kegs Low would need room for whenever a new shipment arrived. The storage charge per keg remains the same. Does this change the answer to Question 1? If so, what is the new answer?
4. Take into account the answer to Question 1 and the supplier’s new policy outlined in Question 2 and the warehouse’s new policy in Question 3. Then determine Low’s new EOQ.