Option #1: EOQ for a Retail Company: Sims Hardware

Sims Hardware sells wood pellets used in heating stoves and slow-cook grills. The supplier for the pellets pays all incoming freight. Following is detailed data collected regarding pellet inventory needs:

Annual demand for wood pellets	65,000 lbs.
Ordering cost per purchase order	$120
Carrying cost per year	15% of purchase costs
Safety-stock requirements	none
Cost of wood pellets	$4 per 40 lb bag

The purchasing lead time is three weeks. Sims Hardware is open 240 days a year (48 weeks for 5 days a week).

Required:

1. Calculate the EOQ for wood pellets.
2. Calculate the number of orders that will be placed each year.
3. Calculate the reorder point for wood pellets.