22. C&A; purchases cases of fertilizer for its lawn-care business from a supplie
ID: 335984 • Letter: 2
Question
22. C&A; purchases cases of fertilizer for its lawn-care business from a supplier who charges C&A; $30 per order and $50 per case. Each case consists of five bags of fertilizer. C&A; needs 2000 bags of fertilizer a year. C&A;'s annual holding costs are 30%. How many cases of fertilizer should C&A; order from its supplier with each order to minimize the total ordering and holding cost? 23. Bakery A uses 80 bags of chocolate chips each year. The chocolate chips are purchased from a supplier for a price of $80 per bag and an ordering cost of $20 per Order. Bakery A's annual inventory holding cost percentage is 40%. If Bakery A chooses an order quantity of 10 bags, what are its ordering and holding costs per year expressed as a percentage of their annual purchasing cost? univloc 24. Store A uses the newsvendor model to manage its inventory. Demand for its product is normally distributed with a mean of 500 and a standard deviation of 200. Store A purchases the product for $10 each unit and sells each for $30. Inventory is salvaged for $5. What is its expected profit if Store A's order quantity is 400 units?Explanation / Answer
PLEASE FIND BELOW ANSWERS TO QUESTION 23 AND 24 :
Answer to question 23:
Annual demand for cases =D = 2000/5 = 400 cases
Ordering cost = Co = $30 per order
Annual unit holding cost per case = Ch = 30% of $50 = $15
Optimum order quantity which minimizes total ordering and inventory holding cost ( EOQ )
= square root ( 2 x Co x D/ Ch)
= square root ( 2 x 30 x 400/15)
= 40
C&A SHOULD ORDER 40 CASES
Answer to question 24:
Annual purchasing cost of chocolate chips bags = $80/ bag x 80 bags = $6400
Annual ordering cost = Ordering cost x number of orders = Ordering cost x Annual demand/ order quantity= $20 x 80/10 = $160
Annual unit inventory holding cost = 40% of $80 = $32
Annual total inventory holding cost = annual unit inventory holding cost x average inventory = $32 x order qty/2 = $32 x 10/2 = $160
Therefore ,
Annual inventory ordering plus holding cost = $160 + $160 = $320
Annual ordering plus holding cost as percentage of annual purchasing cost = 320 / 6400 x 100 = 5%
C&A SHOULD ORDER 40 CASES
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