Reference no: EM132715809

As a result of many process improvements and IT implementations (like EDI), Big Box-Mart has been able to reduce its order costs from $20.35 to $3.26 when purchasing cases of paper towels from its main paper-products supplier. Annual demand is expected to be 294,000 cases and annual holding costs are $14.62 per case.

Hint #1: This is a purchasing order quantity problem (EOQ), not a production order quantity problem. For this question we are combining a JIT concept (lower ordering costs) with what you learned from a previous chapter (inventory management). If necessary, refer back to that chapter.

Hint #2: Remember to use cell references in all your formulas rather than using a rounded input value from a previous calculation.

1) Based on this information, what will be the new optimal order quantity (using the reduced ordering cost)? (Display your answer to the nearest whole number.)

2) When using the reduced ordering cost, as compared to the original ordering cost, by how many cases will the average inventory go down? (Display your answer to the nearest whole number.)

3) What will be the annual total combined savings to ordering costs and holding costs when using the reduced order cost, as compared to the original ordering cost? (Display your answer to two decimal places.)