Clement Bait and Tackle has been buying a chemical water conditioner for its bait (to help keep its baitfish alive) in an optimal fashion using EOQ analysis. The supplier has now offered Clement a discount of $0.50 off all units if the firm will make its purchases monthly or $1.00 off if the firm will make its purchases quarterly. Current data for the problem are: D = 720 units per year; S = $6.00, I = 20% per year; P = $25.
a. What is the EOQ at the current behaviour?
b. What is the annual total cost, including product cost, of continuing their current behaviour?
c. What are the annual total costs, if they accept either of the proposed discounts?
d. At the cheapest of the total costs, are carrying costs equal to ordering costs? Explain.
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