Case 1 Low Nail Company

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 2,000 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 $60 per order without regard to size, and warehousing costs, which were $1 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.

5. Temporarily, ignore your work on questions 2, 3, and 4. Lows luck at the race track is over; he now must borrow money to finance his inventory of nails. Looking at the situation outlined in question 1, assume that the wholesale cost of nails is $40 per keg and that Low must pay interest at the rate of 1.5 percent per month on unsold inventory. What is his new EOQ?

6.Taking into account all the factors listed in questions 1, 2, 3, and 5, calculate Lows EOQ for kegs of nails.

Use Excel & EOQ Formulas in solving all problems. Place the required Excel formula in all cells highlighted in yellow to show correct answer. Format cells appropriately. EOQ = 7 2DB/IC Where 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? a. 2000 = Annual use in units .. 60 EOQ = the most economic order size, in units A = annual usage, in dollars B = administrative costs per order of placing the order C = carrying costs of the inventory (expressed as an ann I = dollar value of the inventory, per unit Correction 1: D = annual demand in units. Correction 2: IC should be listed as (IC) -- both varia Note: C is often referred to as the carrying cost rate Hint: (C) = Annual carrying cost per item per year = Cost of placing an order c. 1 = Annual carrying cost per item per year 1 ! = Additional carrying cost per item per year for half empty warehouse space Note: Warehouse space rented by Low is on-average only half full. e. 2 Total annual carrying cost per item per year (including physical inventory and empty warehouse space) 11 = kegs per order = EOQ Discussion on Question 1: Question 2: The new EOQ, based on the following information is: Orders per Year Order Size Processing Costs ($) Warehousing Costs ($) 1 2 3 4 5 6 2000 1000 667 500 400 333 286 250 222 $0.00 $0.00 $90.00 $120.00 $150.00 $180.00 $210.00 $240.00 $540.00 $4,000.00 $2,000.00 $1,333.33 $1,000.00 $800.00 $666.67 $571.43 $500.00 $444.44 Sum of Processing and Warehousing Costs ($) $4,000.00 $2,000.00 $1,423.33 $1,120.00 $950.00 $846.67 $781.43 $740.00 $984.44 7 8 9 Discussion of Question 2: Question 3: The new EOQ, based on the following information is: Orders Per Year Order Size Processing Costs ($) Warehousing Costs ($) Sum of Processing and Warehousing Costs ($) 2000 $0.00 1 2 3 4 5 Discussion on Question 3: Question 4: The new EOQ, based on the following information is: Orders Per Year Order Size Processing Costs ($) Warehousing Costs ($) Sum of Processing and Warehousing Costs ($) 1 2000 $0.00 2 3 4 5 6 7 Discussion on Question 4: Question 5: The new EOQ, based on the following information is: Orders Per Year Order Size Processing Costs ($) Warehousing Costs ($) Interest Costs ($) Sum of Processing, Warehousing, and Interest Costs ($) 2000 $0.00 $2,000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Discussion on Question 5: Question 6: The new EOQ, based on the following information is: Orders Per Year Order Size Processing Costs ($) Warehousing Costs ($) Interest Costs ($) Sum of Processing, Warehousing, and Interest Costs ($) 1 2000 $0.00 2 3 4 5 6 7 8 9 Discussion on Question 6: Use Excel & EOQ Formulas in solving all problems. Place the required Excel formula in all cells highlighted in yellow to show correct answer. Format cells appropriately. EOQ = 7 2DB/IC Where Question 1: Using the EOQ formula and the information contained in the Low Nail Case Study, how many kegs of nails should Low order at one time? a. 2000 = Annual use in units .. 60 EOQ = the most economic order size, in units A = annual usage, in dollars B = administrative costs per order of placing the order C = carrying costs of the inventory (expressed as an ann I = dollar value of the inventory, per unit Correction 1: D = annual demand in units. Correction 2: IC should be listed as (IC) -- both varia Note: C is often referred to as the carrying cost rate Hint: (C) = Annual carrying cost per item per year = Cost of placing an order c. 1 = Annual carrying cost per item per year 1 ! = Additional carrying cost per item per year for half empty warehouse space Note: Warehouse space rented by Low is on-average only half full. e. 2 Total annual carrying cost per item per year (including physical inventory and empty warehouse space) 11 = kegs per order = EOQ Discussion on Question 1: Question 2: The new EOQ, based on the following information is: Orders per Year Order Size Processing Costs ($) Warehousing Costs ($) 1 2 3 4 5 6 2000 1000 667 500 400 333 286 250 222 $0.00 $0.00 $90.00 $120.00 $150.00 $180.00 $210.00 $240.00 $540.00 $4,000.00 $2,000.00 $1,333.33 $1,000.00 $800.00 $666.67 $571.43 $500.00 $444.44 Sum of Processing and Warehousing Costs ($) $4,000.00 $2,000.00 $1,423.33 $1,120.00 $950.00 $846.67 $781.43 $740.00 $984.44 7 8 9 Discussion of Question 2: Question 3: The new EOQ, based on the following information is: Orders Per Year Order Size Processing Costs ($) Warehousing Costs ($) Sum of Processing and Warehousing Costs ($) 2000 $0.00 1 2 3 4 5 Discussion on Question 3: Question 4: The new EOQ, based on the following information is: Orders Per Year Order Size Processing Costs ($) Warehousing Costs ($) Sum of Processing and Warehousing Costs ($) 1 2000 $0.00 2 3 4 5 6 7 Discussion on Question 4: Question 5: The new EOQ, based on the following information is: Orders Per Year Order Size Processing Costs ($) Warehousing Costs ($) Interest Costs ($) Sum of Processing, Warehousing, and Interest Costs ($) 2000 $0.00 $2,000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Discussion on Question 5: Question 6: The new EOQ, based on the following information is: Orders Per Year Order Size Processing Costs ($) Warehousing Costs ($) Interest Costs ($) Sum of Processing, Warehousing, and Interest Costs ($) 1 2000 $0.00 2 3 4 5 6 7 8 9 Discussion on Question 6