Saint Joseph Hospital buys 600 boxes of latex gloves every year. Each box costs the hospital $8. The cost to place an order for the gloves—which covers the employee staff time, shipping costs, and the hospital's receiving center for inventorying, for example—is estimated at $30 per order. Carrying costs include out-of-pocket costs and capital costs. Out-of-pocket costs related to carrying costs (for storing the boxes, verifying the inventory periodically, etc.) are estimated at $2 per box per year. To calculate capital costs per box related to carrying costs, the hospital uses a 3 percent interest rate.

 

Question 1. Calculate capital costs per box (Show how you calculate it).

 

Question 2. Calculate a carrying cost per box per year (Show how you calculate it).

 

Question 3. How many boxes should be ordered at a time? In other words, calculate economic order quantity (EOQ). (Show how you calculate it)