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.	2100.00	= Annual use in units
1b.	52.00	= Cost of placing an order
1c.	1.52	= Annual carrying cost per item per year
1d.	1.52	= 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.	3.04	= Total annual carrying cost per item per year (including physical inventory and empty warehouse space)
1f.	379	= 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	2100.0		$ 3,192.00
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.
Question 2:
	Orders per Year	Order Size	Annual Processing Costs ($)	Annual Warehousing Costs ($)	Total Annual Inventory Costs ($)
	1	2,100	$0.00
	2
	3
	4
	5
	6
	7
	8
	9
		The new EOQ, based on the current situation is:
	Total cost savings (or extra expenses) from #1?
	Discuss your recommended Order size. Should he take the full rebate? Should he take the partial rebate? Should he avoid the rebate? Compare the savings in Total inventory-related costs from #1 to convince Mr. Low of your recommendation.
Question 3:
	Orders Per Year	Order Size	Annual Processing Costs ($)	Annual Warehousing Costs ($)	Total Annual Inventory Costs ($)
	1	2,100
	2
	3
	4
	5
	6
	7
	8
	9
		The new EOQ, based on the current situation is:
	Total cost savings (or extra expenses) from #1?
	Should Mr. Low take the new warehouse offer? What is your new recommendation for EOQ? Compare the savings in Total inventory-related costs from #1 to convince Mr. Low of your recommendation.
Question 4:
	Orders Per Year	Order Size	Annual Processing Costs ($)	Annual Warehousing Costs ($)	Total Annual Inventory Costs ($)
	1	2,100
	2
	3
	4
	5
	6
	7
	8
	9
		The new EOQ, based on the current situation is:
	Total cost savings (or extra expenses) from #1?
	What is your new recommendation for EOQ? Convince Mr. Low to take the supplier rebate, new warehouse offer, both or neither.
Question 5:
	Orders Per Year	Order Size	Annual Processing Costs ($)	Annual Warehousing Costs ($)	Annual Interest Costs ($)	Total Annual Inventory Costs ($)
	1	2,100
	2
	3
	4
	5
	6
	7
	8
	9
	10
	11
	12
	13
	14
	15
		The new EOQ, based on the current situation is:
	Total cost savings (or extra expenses) from #1?
	What is his new EOQ and how has his Total inventory costs changed? Discuss how this situation is different from when you used company cash-on-hand to purchase inventory in the past.
Question 6:
	Orders Per Year	Order Size	Annual Processing Costs ($)	Annual Warehousing Costs ($)	Annual Interest Costs ($)	Total Annual Inventory Costs ($)
	1	2,100
	2
	3
	4
	5
	6
	7
	8
	9
		The new EOQ, based on the current situation is:
	Total cost savings (or extra expenses) from #5?
	Given the new Cost of Capital, should Mr. Low still take the supplier rebate and new warehouse offer? How much do these now save him?
	Which of these 6 EOQs are correct? What is your final recommendation to Mr. Low?