An oil change shop

An oil change shop is trying to determine how many cases of engine oil they should order from its distributor. They use 60,000 cases per year. Annual carrying cost is 20% of the item cost. Ordering cost is $8.50 per order. The distributor offers the following quantity discount schedule:

Quantity.........Cost

1-999............ $5.00

1000-1999 ......$4.50

2000+............ $4.25

1. What is the EOQ for each item cost?

2. What is total cost (holding cost + ordering cost + material cost) if they buy at $4.50 per case at the minimum total cost point on $4.50 curve (EOQ point for $4.50)?

3. What is total cost at the item cost of $4.25 and Q=2000 (lowest allowable order quantity from supplier for this price)?

4. What is the final order quantity you recommend (one that results the lowest total cost)?