A mandger receives a forecast for next year Demand b projected to be 550 units f

Question

A mandger receives a forecast for next year Demand b projected to be 550 units for the first half of the year and 980 units for the second half The monthly holding cost is $2 per unit, and it costs an estimated $55 to process an order. Assuming that monthly demand will be level each of the six-monthe periods covered by the forecast (e g. 100 per monthe for each of the first six months), determine an order size that will minimize the sum of ordefined theg and carrying costs for each of the six monthe periods (Round your answers to the nearest whole number.) If the vendor is willing to offer a discount of $10 per order for ordefined theg in multiple of 50 units (e g., 50, 100, 150), would you advise the mandger to take advantage of the offer in either period? If so, what order size would you recommend? (Round intermediate calculations to 2 decimal places.)

Explanation / Answer

1-a-

1-b- Total Cost= Co*D/Q+Co*Q/2+PD-discount (since Price is not given PD is ignored for calculation)

Below is the total cost calculation at various order sizes

hence for both 1-6 months and 7-12 months 150 is the optimal order size

1-6 monts SQRT(2*550*55/2) 174 7-12 Months sqrt(2*980*55/2) 232

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