CASE 8-1: LOW NAIL COMPANY Question 1: Using the EOQ methods outlined in the chapter, how many kegs of nails should Low order at one time? The EOQ formula is: EOQ = 'J 2 (annual use in units) (cost of placing an order annual carrying cost per item per year = v' 2 (2000)(60)12 = v' 120,000 = 345 kegs per order Note the 2 in the denominator. That is because, on average, the rented warehouse space is only half full, which, makes the average warehousing cost per keg be $2. Question 2: Assume all conditions in Question 1 hold, except that Low '5 supplier now offers a quantity discount in the form of absorbing all or part of Low's order processing costs. For orders of 750 or more kegs of nails, the supplier will absorb all the order processing costs; for orders between 249 and 749 kegs, the supplier will absorb half. What is Low's new EOQ? (It might be useful to lay out all costs in tabular form for this and later questions.) Sum of processing Ordersfyear Order size Processing costs Warehousing costs and warehousing S S cows 5 _-m_-En:-m -Ei-_E--EEE- --E- 120 150 180 334 514 210 496 490 The new EOQ. based on the above information. is 250 kegs