Flintstone Hair Products carries a basic hair product for women that sells at an
ID: 2740242 • Letter: F
Question
Flintstone Hair Products carries a basic hair product for women that sells at an approximate constant rate of 500 bottles every two months. Fred's current buying policy is to order 500 bottles each time an order is placed. It costs Fred $20.00 to place an order. The annual holding cost rate is 12%. With the order quantity of 500, Fred obtains the bottles of hair product at the lowest possible unit cost of $12 per bottle. Other quantity discounts offered by the manufacturer are as follows. What is the minimum cost order quantity for the hair product. What are the annual savings of your inventory policy over the policy current being used by Fred?
a) What is the minimum cost order quantity for the bottles of hair product.
b)What are the annual savings of your inventory policy over the policy current being used by Fred?
Order Quantity Price per Pair 0-99 $36.00 100-199 $32.00 200-299 $30.00 300 or more $28.00Explanation / Answer
EOQ =Economic Order Quantity D Annual Demand 500*6 3000 O Ordering Cost 20 H Annual Holding cost 12% of cost 2.4 EOQ Squareroot of (2*Annual Cost * Ordering Cost) /Annual Carry Cost (2*Annual Cost * Ordering Cost) /Annual Carry Cost) 50000 EOQ = 223.6068 Current Inventory Cost Order Quantity 500 No. of order (3000/500) 6 Average Holding 250 Ordering cost (US$ 20*6) 120 Carrying cost (Average Level*Annual Holding Cost 600 A Total Cost 720 Proposed Inventry cost Order Quantity 224 No. of order (3000/224) 14 Average Holding 112 Ordering cost (US$ 20*14) 280 Carrying cost 268.3282 B Total Cost 548.3282 A-b Annual Saving In USD 171.6718 Note - Discounts offered by suppliers is not clear, hence it is not used in calculation.
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