Spokane Public Power Co. purchases transformers at a cost of $330 and uses an or

Question

Spokane Public Power Co. purchases transformers at a cost of $330 and uses an ordering cost of $45 per order. Inventory is carried at a cost of 10 percent of the per-unit price (based on average inventory). Storage costs, based upon adequate space for maximum inventory, are $6 per transformer. Annual demand is 800 units.

A) Compute the total yearly cost if the firm orders in EOQ amounts.

B) The supplier has offered the power company a 10 percent discount for purchasing in quantities of 200. Assuming this affects all costs except ordering and per-unit storage costs, compute the total yearly cost for this quantity discount situation.

Explanation / Answer

EOQ = Sqrt((2 * 800 * 45) / (330 * 0.1)) = 46.70994 = 47

TC (EOQ) = (800 * 330) + ((800 / 47)*45) + ((47/2) * (0.1*330)) = $265,541.5

When Q = 200 , P = $(330 – 33) = $297

TC = (800 * 297) + ((800 / 200)*45) + ((200/2) * (0.1*297)) = $240,750

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.