Economic Order Quantity An energy company orders metric tons per year. Delivery

Question

Economic Order Quantity An energy company orders metric tons per year. Delivery lead time has averaged 8 days. The annual cost to hold inventoryis dollar 50 per metric ton and each order that is placed with the supplier costs dollor 2,500 per metric ton. The plant manager has set a safety stock level of 50,000 metric tons. What is the economic order quantity (in metric tons)? What is the total holding cost of the year? What is the total ordering cost of the year? The next order should be placed when liquid natural gas inventory drops to how many metric tons? (assume 365 days in one year to converting annual demand to daily demand) Quantity Discounts The UWMBookstore orders coffee mugs out of a catalog from a supplier. The demand for these coffee mugs is 1,849 per year. There is a $45 charge for placing an order and the cost per coffee mug to hold it in inventory for the year is $2.50. What is the economic order quantity? For part b) assume the cost of the coffee mugs are based on the quantity ordered at one time. If less than 200 are ordered, the unit price is $7.25, if 200-499 are ordered the unit price is $7.00, if 500 to 999 are ordered, the unit price is $6.95, and if 1000 or more are ordered the unit price is $6.75. What order quantity will result in the lowest total annual cost to the UWM Bookstore? Be sure to show your work for full credit.

Explanation / Answer

A = Demand for the year

Cp = Cost to place a single order

Ch = Cost to hold one unit inventory for a year

1. EOQ=square root of (2*A*Cp/Ch) 10,000

2.HOLDING COST=Q/2*Ch=10,000/2X50=250000

3.ORDERING COST=A/Q*Cp=250000

4.Reorder Level = Safety Stock + Average Daily Usage

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