One of the top-selling items at a gift shop are autographed pictures of Susan Olsen.

Sales are 18 pictures per week, and the purchase-price from the supplier is £60 per picture. The cost of placing an order to the supplier is £45. Annual holding costs are £15 per picture. There are 50 weeks in a year.

(a) What size orders should the gift shop place based on economic order quantity (EOQ)?

(b) What will be the total annual cost of orders using EOQ?

(c) How many orders will be placed per year based on EOQ?

(d) How often will orders be placed based on EOQ?

(e) Continuing from the previous part, the holding cost of £15 per picture per year was a result of applying an annual interest rate of 25% to the per-unit purchase price of £60. Suppose there is an alternative source of supply that charges a fixed cost of £40 and a per-unit purchase price of £61. Which supplier would you choose – original (in part) or alternative (described in this part)?

 

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