Economic Order Quantity

		Scenario
	1	2	3	4	5
Annual Demand	122,500	122,500	122,500	122,500	122,500
Cost per purchase order	$40.00	$40.00	$40.00	$40.00	$40.00
Carrying cost per package per year	$5.00	$5.00	$5.00	$5.00	$5.00
Quantity per purchase order	900	1400	1800	2100	2700
Number of purchase orders per year	136.1111111	87.5	68.05555556	58.333333	45.37037
Annual ordering costs	$5,444.44	$3,500.00	$2,722.22	$2,333.33	$1,814.81
Annual carrying costs	$2,250.00	$3,500.00	$4,500.00	$5,250.00	$6,750.00
Total annual inventory costs	$7,694.44	$7,000.00	$7,222.22	$7,583.33	$8,564.81

If EOQ = 1400

Required

1. Prepare a graphical analysis of the EOQ decision.
2. Picasso Paints is about to introduce an automated ordering system for its customers. Stan estimates that Picasso Paints ordering costs will be reduced to $18 per purchase order and carrying cost will become $4.00. Calculate the new EOQ and the new annual ordering and carrying costs.
3. Prepare a graphical analysis of the new EOQ decision and comment on the differences.