Simmons Pyrotechnics, Ltd. is interested in optimizing its ordering from its supplier, Skysong Fireworks Co., Ltd. Simmons needs to purchase 125,000 lbs. of fireworks per year to meet demand, and has holding costs of 55% per year.
Each order Simmons places costs them $1,500 to execute and ship.
Skysong is willing to provide fireworks according to the following price schedule:
0 - 2,499 lbs.: $25.00 per lb.
2,500 - 12,499 lbs.: $24.00 per lb.
12,500 - 24,999 lbs.: $23.00 per lb.
25,000 lbs. +: $21.00 per lb.
Based on these values answer the following:
What is the EOQ for each price point?
What is the "valid" EOQ? In other words, what EOQ corresponds naturally to the price schedule?
What is the quantity Simmons should order to minimize costs?
What is the difference in annual total costs between the answers for parts b and c?