5. Skatz Company is one of the leading manufacturers of roller blades. In their plant they...

We will calculate economic order quantity (EOQ) for all options and choose the one which is feasible and lowest inventory cost option.

Supplier A-

Flat rate of $3

EOQ = square root (2*D*S/H)

where D is annual demand, S is ordering cost, H is holding cost annually.

EOQ = square root (2*400000*150/(3*0.3)) = ~11,547

Supplier B-

1)

Option for ordering less than 5000 with price of $3.25

EOQ = square root (2*D*S/H)

= square root (2*400000*150/0.3*3.25)

= 11,094

This is not feasible since quantity range for this price is less than 5000

2) Option for quantity 5000 and less than 15000 at price of $3 is already calculate for Supplier A with EOQ of ~11,547

3) Option of ordering quantity above 15000 at price of $2.6

EOQ = square root (2*D*S/H)

= square root (2*400000*150/0.3*2.6)

= 12,403

This is again not feasible since the quantity range for this price is above 15000.

Hence, the Optimal quantity to be ordered is ~11,547

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