A large Internet Retail Distributor uses 24000 boxes each month to pack and ship its goods. The boxes cost $1.20 each. The company estimates the annual holding cost for a box at 30% of the box cost. The purchasing department of the company estimates that the cost to place an order is $15.
1) The purchasing manager in charge of packing materials currently orders boxes once a month. Using this ordering method what is the annual total cost of ordering and storing these boxes?
2) What would the EOQ be for the boxes?
3) How much would the total cost to order and store these boxes be reduced if the purchasing manager used the EOQ rather than ordering once a month?