The GlobPath (GP) Inc. recently bought a business which is specialized in selling nails. The
annual demand volume of nails is predicted to be 4,000 kegs. The nails are largely sold to
retail customer in woodworking and construction projects in an even flow (i.e., constant
demand throughout).
GP wants to decide how many nails to order at any time.
Two types of costs involve: (i) order processing cost (ii) inventory cost.
The order processing cost is $100 per order (regardless of order size and
inventory).
The inventory cost is $2 per year per keg space. (space needs are varied with the
inventory size).
Using the EOQ methods, how many kegs of nails should GP order at one time to supply to
the market demand?
The EOQ formula is: =
D = 4000 kegs/year
S= $100/order
H = $2/item/year