The Rushton Trash Company stocks, among many other products, a certain container, each of which occupies four square feet of warehouse space. The warehouse space currently available for storing this product is limited to 600 square feet

Demand for the product is 15,000 units per year. Holding costs are $4 per container per year. Ordering costs are $5 per order.
(a) What is the cost-minimizing order quantity decision for Rushton?
(b) What is the total inventory-related cost of this decision?
(c) What is the total inventory-related cost of managing the inventory of this product, when the limited amount of warehouse space is taken into account?
(d) What would the firm be willing to pay for additional warehouse space?

(a) The EOQ is about 194, more than there is room to store.
(b) Total cost at Q =194 is (15,000 / 194 )($5 ) + (194 / 2 )($4 ) = $774.60.
(c) The warehouse will hold only 150 containers. The annual cost at Q = 150 is 100 × 5 + 75 × 4 = $800.
(d) From (b), the EOQ cost is $25.40 less than current cost, which reflects the limited storage space. Rushton would consider paying up to $25.40 for a year's rental of enough space to store 44 additional containers.