Question: Problem # 1

A large law firm uses an average of 40 packages of copier paper a day. Each package contains 500 sheets. The firm operates 246 days a year. Holding cost for the paper is $1 a year per pack, and it costs approximately $6 to order and receive a shipment of paper.

a) What order size would minimize total annual ordering and holding costs?

b) Compute the total annual ordering and holding costs using your order size from part a).

c) Except for rounding, are annual ordering and holding costs always equal at the EOQ? Why?

d) The office manager is currently using an order size of 380 packages. The partners of the firm expect the office to be managed “in a cost-efficient manner”. Would you recommend that the office manager use the optimal order size instead of 380 packages? Justify your answer.