Question:
1. La Cucina Company sells kitchen supplies and housewares. Lava stone is used in production of molcajetes (mortars and pestles used in the making of guacamole) and is purchased from external suppliers. Each year, 2,500 pounds of lava stone is used; it is currently purchased in lots of 500 pounds. It costs La Cucina $4 to place the order, and carrying cost is $2 per pound per year.
Required:
1. What is the EOQ for Lava stone?
2. How many orders per year for Lava stone will La Cucina place under the EOQpolicy?
3. What is the total annual ordering cost of Lava stone for a year under the EOQ policy?
4. What is the total annual carrying cost of Lava stone per year under the EOQ policy?
5. What is the total annual inventory-related cost for Lava stone under the EOQ?