Suppose that the annual demand for a componet is aproximately 60,000 units. The
ID: 2329081 • Letter: S
Question
Suppose that the annual demand for a componet is aproximately 60,000 units. The company ordes the component from a supplier who has offered the following quantity discount shedule.
order Quantity Price per unit
0-999 $30
1,000-1,999 $29
2,000-3,999 $28
4,000-or more $27
If the company's carrying charges is 15 percent of the item's price and the cost per order is $150, determine yhe order quantity that would minimize the total related inventory cost for this component.
Explanation / Answer
Quantity(Q)
Calculating EOQ + Validity of order quantity with context to the above quantity discount schedule
Hence, the order quantity that would minimize the total related inventory cost for this component would be 4000 units.
Demand (D)= 60,000 unitsQuantity(Q)
Price(P) 0-999 $ 30 1,000-1,999 $ 29 2,000-3,999 $ 28 4,000-or more $ 27 Carrying cost 15% Cost per order $ 150Calculating EOQ + Validity of order quantity with context to the above quantity discount schedule
Economic order quantity (EOQ) = square root of [(2 x demand x ordering costs) ÷ carrying costs] EOQ(@$30 price) 2,000 ( valid EOQ 999) EOQ(@$29 price) 2,034 (Valid EOQ 1999) EOQ(@$28 price) 2,070 (Valid EOQ 2070) EOQ(@$27 price) 2,108 (Valid EOQ 4000) Total Cost (TC)= Ordering cost +holding cost + Cost of inventory Particulars Demand/Valid quantity*cost per order + (Valid Quantity/2) *carrying cost per unit +Demand*cost per unit Total Cost TC(@$30 price) $ 9,009.01 $ 2,247.75 1,800,000 $ 1,811,257 TC(@$29 price) $ 4,502.25 $ 4,347.83 1,740,000 $ 1,748,850 TC(@$28 price) $ 4,347.41 $ 4,347.41 1,680,000 $ 1,688,695 TC(@$27 price) $ 2,250.00 $ 8,100.00 1,620,000 $ 1,630,350Related Questions
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