Yales Jewellers Inc. purchases 30,000 one-quarter-carat diamonds each year for mountings in various settings. Pertinent information relating to the diamonds is given below:

Purchase cost per diamond 200

Cost to carry one diamond in inventory for one year 4

Cost of placing one order to the company's supplier 85

The maximum order that the insurance company will permit is 1,500 diamonds. The minimum order that the supplier will permit is 300 diamonds, with all orders required to be in multiples of 300 diamonds. The company is currently purchasing in the maximum allowable volume of 1,500 diamonds per order.

Required

Use the procedure described below to complete worksheet Q3. From this worksheet, answer the following questions:

1. What is the optimum quantity for the company's diamond orders?

2. What is the annual cost savings that will be realized if the company purchases in the volume you have determined in part a above, as compared to its present purchase policy?

3. Use the completed worksheet to perform the following what-if analysis:

a. What is the economic order quantity (EOQ) if the annual quantity used is 60,000 units instead of 30,000 (in cell C8)? Keep the order sizes unchanged.

b. What is the EOQ if the cost of placing an order decreases to 15 (in cellC12), with the annual quantity unchanged at 30,000 units?