MarkJacobs is the owner of a truck repair shop. He uses an EOQ model for each of his truck parts. He initially predicts the annual demand forheavy-duty tires to be 2,100. Each tire has a purchase price of $50. The incremental ordering costs per purchase

order are $40. The incremental carrying costs per year are $4.00 per unit plus 15% of thesupplier's purchase price.

Requirements

1. Calculate the EOQ forheavy-duty tires, along with the sum of annual relevant ordering costs and carrying costs.

2. Suppose Jacobs is correct in all his predictions except the purchase price.(He ignored a new law that abolished tariff duties on importedheavy-duty tires, which led to lower prices from foreigncompetitors.) If he had been a faultlesspredictor, he would have foreseen that the purchase price would drop to $39 at the beginning of the year and would be unchanged throughout the year. What is the cost of the predictionerror?

Calculate the EOQ forheavy-duty tires, along with the sum of annual relevant ordering costs and carrying costs.