Thomas

Question 1

EOQ(Economic order quantity) is based on the logic that it determine the quantity of an order calls for the need of a company to balance two types of costs. The cost of the inventory and the costs incurred for ordering the inventory. Therefore, EOQ is about finding the quantity point at which the ordering costs equals to carrying costs.

Formula is :

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D= annual demand, in units

B = administrative costs per order of placing the order

C = carrying costs of the inventory (%)

I = dollar value of the inventory, per unit

Question 1 EOQ :

= √ 2 (2000) (60) / 2

      = √ 120,000

      = 347 kegs per order (round up)

From the calculation:

The 2 can be counteracted. Because the warehousing costs in question1 is $1 per year per keg space.It means the carrying cost base on the space size not the average kegs of nails so the carrying costs is $1 per year per keg space.

Question 2 :

Two quantity discount:

1.Supplier will absorb all the order-processing costs for orders are over 750 or more kegs.

2.Supplier will absorb half of the order-processing costs for orders are between 249 and 749 kegs.

To satisfy the conditions of Q2,here is the table

|Ordering Times |Ordering Quantity |Ordering Cost($) |Carrying Cost($) |Total Cost($) |

|1 |2000 |0 |2000 |2000 |

|2 |1000 |0 |1000 |1000 |

|3 |667 |90 |667 |757 |

|4 |500 |120 |500 |620 |

|5 |400 |150 |400 |550 |

|6 |334...