After making some wise short term investments at a race track, Chris Low had some additional cash to invest in a business The most promising opportunity at the time was in building supplies, so Low bought a business that specialized in sales of one size of nail The annual volume of nails was 2,100 kegs, and they were sold to retail customers in an even flow Low was uncertain how many nails to order at any time Initially, only two costs concerned him order processing costs, which were $52 per order without regard to size, and warehousing costs, which were $1 52 per year per keg space This meant that Low had to rent a constant amount of warehouse space for the year, and it had to be large enough to accommodate an entire order when it arrived Low was not worried about maintaining safety stocks, mainly because the outward flow of goods was so even Low bought his nails on a delivered basis Information to consider Annual demand increased to 2,200 kegs per year Inventory carrying costs has increased to $1 52 per keg Order processing costs are now only $52 00 per order Inflation has raised interest to 1 3 per month and kegs to a cost of $42 00 each Place the required formulas in all cells Answers must be properly formatted and fit in the space provided Question 1 Using the EOQ formula and the information contained in the Low Nail Case Study, how many kegs of nails should Low order at one time 1a Annual use in units 1b Cost of placing an order 1c Annual carrying cost per item per year 1d Additional carrying cost per item per year for half empty warehouse space Note Warehouse space rented by Low is on average only half full 1e Total annual carrying cost per item per year (including physical inventory and empty warehouse space) 1f kegs per order Note Warehouse space rented by Low is only half full on average 1g Orders per Year Order Size Annual Processing Costs ($) Annual Warehousing Costs ($) Total Annual Inventory Costs ($) 1 0 $ 1h Recommend to Mr Low what he should do for his Inventory Management decision Be clear to state why this is in his best interest

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on May 19, 2024

After making some wise short-term investments at a race track, Chris Low had some additional cash to invest in a business. The most promising opportunity

After making some wise short-term investments at a race track, Chris Low had some additional cash to invest in a business. The most promising opportunity at the time was in building supplies, so Low bought a business that specialized in sales of one size of nail. The annual volume of nails was 2,100 kegs, and they were sold to retail customers in an even flow. Low was uncertain how many nails to order at any time. Initially, only two costs concerned him: order-processing costs, which were $52 per order without regard to size, and warehousing costs, which were $1.52 per year per keg space. This meant that Low had to rent a constant amount of warehouse space for the year, and it had to be large enough to accommodate an entire order when it arrived. Low was not worried about maintaining safety stocks, mainly because the outward flow of goods was so even. Low bought his nails on a delivered basis.

Information to consider

Annual demand increased to 2,200 kegs per year
Inventory carrying costs has increased to $1.52 per keg
Order processing costs are now only $52.00 per order
Inflation has raised interest to 1.3% per month and kegs to a cost of $42.00 each

	Place the required formulas in all cells . Answers must be properly formatted and fit in the space provided.

Question 1: Using the EOQ formula and the information contained in the Low Nail Case Study, how many kegs of nails should Low order at one time?

1a.		= Annual use in units

1b.		= Cost of placing an order

1c.		= Annual carrying cost per item per year

1d.		= Additional carrying cost per item per year for half empty warehouse space
		Note: Warehouse space rented by Low is on-average only half full.

1e.		= Total annual carrying cost per item per year (including physical inventory and empty warehouse space)

1f.		= kegs per order	Note: Warehouse space rented by Low is only half full on average !!!

1g.	Orders per Year	Order Size	Annual Processing Costs ($)	Annual Warehousing Costs ($)	Total Annual Inventory Costs ($)
	1.0			$

1h. Recommend to Mr. Low what he should do for his Inventory Management decision. Be clear to state why this is in his best interest.