Inventory costs are a substantial financial burden for the firm. Assume that inventory is used up at a constant rate over the year. Briggs & Stratton needs spark plugs for its engines which is purchases in bulk. Briggs plans to purchase 680,000 over the year, which it purchases from Thailand. The fixed cost of shipping a load is $800. The carrying cost of spark plugs is estimated to be $.05 per plug. [Chap 20]

A. What is the optimal size of an order from its Thai suppliers and how many orders does it plan to make in a year base on EOQ?

B. Briggs is offered credit terms of 1/10 net 30 on spark plugs. What is the effective annual return (EAR) on the implied credit offered by Thai suppliers to Briggs?

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