The annual volume of nails was 2,000 kegs, and they were sold to retail customer

Question

The annual volume of nails was 2,000 kegs, and they were sold to retail customers in an even flow. Low was uncertain how many nails to order at any time. Initially, only two costs concerned him: order-processing costs, which were $60 per order without regard to size, and warehousing costs, which were $1 per year per keg space. This meant that Low had to rent a constant amount of warehouse space for the year, and it had to be large enough to accommodate an entire order when it arrived. Low was not worried about maintaining safety stocks, mainly because the outward flow of goods was so even. Low bought his nails on a delivered basis.

Question#1 Using the EOQ method, how many kegs of nails should Low order at one time? EOQ = square root 2DB/IC

Please show all steps.

Thank you!

Explanation / Answer

EOQ= sqrt[(2*2000*60)/(1)]

=489.89 or nearly equal to 490 kegs

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