1- A law firm always orders 50 cases of paper from their office supply company.
ID: 2786150 • Letter: 1
Question
1- A law firm always orders 50 cases of paper from their office supply company. They incur an annual holding cost of $15 per case and have an ordering cost of $25 each time they place an order. If their annual demand is 480 cases, how much could they save annually by switching to their economic order quantity?
2- The campus bookstore sells 4,000 sets of graduation regalia each year. Placing an order from their supplier costs $25 regardless of order quantity, so they usually place a large order (a half year's supply) at a time. It costs $5 per year to hold a cap and gown in inventory, primarily insurance costs for the highly flammable material. What is the difference in the total cost if they order at their optimal order quantity compared to their current policy?
can you please answer both of these questions and show me how do it
Explanation / Answer
1. Here Ordering cost = $25
Holding Cost = $15
Annual Demand = 480
So, E.O.Q = (2x ordering cost x annual demand / holding cost) 1/2
= (2x25x480/15)1/2
= $40
2. Their optimal order quantity is:
E.O.Q. =(2x25x4000/5)1/2
= $200
The total cost at an optimal order quantity is
TC* = + = $1000
Their cost of ordering 2000 cap and gown sets at a time is
TC* = + $5050. which is a difference of $4050.
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