Chapter III, Problem 6E

Fiber Technology, Inc., manufactures glass fibers used in the communications industry. The company’s materials and parts manager is currently revising the inventory policy for XL-20, one of the chemicals used in the production process. The chemical is purchased in 10-pound canisters for $95 each. The firm uses 4,800 canisters per year. The controller estimates that it costs $150 to place and receive a typical order of XL-20. The annual cost of storing XL-20 is $4 per canister.

Required:

1. 1. Prepare a table showing the total annual cost of ordering and storing XL-20 for each of the following order quantities: 400, 600, and 800 canisters.
2. 2. What are the weaknesses in the tabular approach?