Clement Bait & 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 quarterly. Current data for the problem are: D=1800 units per year; S = $6.00, I = 15% per year; P = $25.
a. What is the EOQ at the current behavior?
b. What is the annual total cost of continuing their current EOQ-based behavior?
c. What is the annual total cost, if they accept the proposed discount?
d. At the cheaper of the two total costs, are carrying costs equal to ordering costs and should they accept the offer? Explain.