Emery Pharmaceutical uses an unstable chemical compound that must be kept in an environment where both temperature

Question:

Emery Pharmaceutical uses an unstable chemical compound that must be kept in an environment where both temperature and humidity can be controlled. Emery uses 800 pounds per month of the chemical, estimates the holding cost to be 50% of the purchase price (because of spoilage), and estimates order costs to be $50 per order. The cost schedules of two suppliers are as follows:

(a) What is the economic order quantity for each supplier?
(b) What quantity should be ordered, and which supplier should be used?
(c) What is the total cost for the most economic order size?
(d) What factor(s) should be considered besides totalcost?

Economic Order Quantity
Economic order quantity (EOQ) is the ideal order quantity a company should purchase to minimize inventory costs such as holding costs, shortage costs, and order costs. This production-scheduling model was developed in 1913 by Ford W. Harris and has...