* MBI is a manufacturer of personal computers. All its personal computers use a

ID: 3149158 • Letter: #

Question

* MBI is a manufacturer of personal computers. All its personal computers use a hard disk drive which it purchases from Ynos. MBI operates its factory 52 weeks per year, which requires assembling 100 of these disk drives into computers per week. MBI's annual holding cost rate is 20 percent of the value (based on purchase cost) of the inventory. Regardless of order size, the administrative cost of placing an order with Ynos has been esti- mated to be $50. A quantity discount is offered by Ynos for large

Explanation / Answer

Back-up Theory

EOQ = {(2DS)/(hC)}, where

D = annual demand in units (52 x 100 = 5200);

S = ordering cost per order ($50 per order);

h = carrying cost percentage (in decimal form) (0.2)

C = cost (price) per unit (varying from $100 to $90)

Given values are given within brackets above.

Part (a)

Calculations using the above formula

EOQ under discount

Order Qty

Price C

EOQ

1 to 99

100

36.05551

100 to 499

37.95317

500 or more

40.06168

Since only 36 fits into the discount scheme, EOQ is uniquely decided as 36 ANSWER 1

Total Annual Variable Cost = {(36/2) x 100 x 0.2} + {(5200 x 50)/36)}

= 360 + 7222.22

=7582. 22 ANSWER 2

Part (b)

Number of orders per annum = 5200/36 = 144.44 ANSWER 3

Inter-order interval = 365/144.44 = 2.53 days ANSWER 4