A retailer is specializing in selling performance enhancer food supplements and vitamin

supplements. One of the products purchased by retailer for resale flavored Vitamin water

by Searle Company. The retailer sells a fixed quantity of 200 bottle of Vitamin water per

week. The estimated storage costs for a bottle of Vitamin water are $2.00 per annum per

bottle. Delivery from retailer's existing suppliers takes two weeks and the purchase price per

bottle delivered is $20. The current supplier charges a fixed $75 order processing charge

for each order, regardless of the order size.

Retailer has recently been approached by another supplier of Vitamin water with the

following offer: (1) the cost of retailer per bottle will be $19 each. (2) There will be a

fixed order processing charge of $250 regardless of order size. (3) Delivery time will be

one week. (4) Retailer estimates that due to packaging differences, the storage cost per

bottle will be $1.80 per annum per bottle.

Required:

i.

Assuming the retailer continues to purchase from existing supplier, calculate

economic order quantity, reorder level and total cost of stocking Vitamin water for

one year.

ii.

Determine the economic order quantity if retailer changes to new supplier and

determine if it would be financially viable to change to this new supplier.