oA rrow Space’s controller, Jane Turnbull, recently attended a seminar on JIT purchasing.

Afterwards she analyzed the cost of storing XL-20, including the costs of wasted space and inefficiency.

She was shocked when she concluded that the real annual holding cost was $19.20 per canister. Turnbull then met with Doug Kaplan, Arrow Space’s purchasing manager. Together they contacted Reno Industries, the supplier of XL-20, about a JIT purchasing arrangement. After some discussion and negotiation, Kaplan concluded that the cost of placing an order for XL-20 could be reduced to just $20. Using these new cost estimates, Turnbull computed the new EOQ for XL-20.

(1) Use the equation approach to compute the new EOQ.

(2) How many orders will be placed per year?

Refer to the original data given in the preceding problem for Arrow Space, Inc.

Required

a. Prepare a table showing the total annual cost of ordering and storing XL-20 for each of the following order quantities: 400, 600, and 800 canisters.

b. What are the weaknesses in the tabular approach?