You’re a buyer for fictional Quality Kitchen Appliances. The store has a demand for 1,000 toaster ovens per year. The cost of each toaster oven is US$78. The ordering cost is US$100 per order. The holding cost is 40% of the cost of the oven per unit per year.

1. What is the optimal order quantity?

2. How many orders will be placed per year?

3. What is the total annual cost (in U.S. dollars)?

4. If the holding cost decreases to 30% of the unit cost of the oven, what effect will it have on EOQ and the total annual cost?

5. Suppose the store manager purchases 100 ovens per order instead of the EOQ. What impact will the 100-unit order size have on the firm’s total annual cost?