urgent Question 4 out of 6 (20 Points) No Thai requires 1,000 plastic to-go boxe
ID: 358833 • Letter: U
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urgent
Question 4 out of 6 (20 Points) No Thai requires 1,000 plastic to-go boxes each month and orders their plastic to-go boxes from a local distributor. Luckily, the distributor offers an all-units discount according to the table below. The annual cost of capital is 25%. It costs $15 for a No Thai employee to go pick up these boxes Discount Category Price (per box) Order Quantity Less than 1,000 1,000 up to 10,000 10,000 or more $0.75 a) Determine the optimal ordering quantity according to the EOQ model with quantity b) c) discounts What is the resulting cost per year? With this order quantity, what is the time interval between trips to the distributer?Explanation / Answer
Annual demand, D = 1000*12 = 12,000
Ordering cost, K = $ 15 per order
a) Consider the starting price, P = $ 0.75
Holding cost rate, H = 0.75*25% = 0.1875
EOQ = (2*D*K/H) = (2*12000*15/0.1875) = 1386
EOQ is more than 1000, therefore, applicable price is 0.70
Recalculate Holding cost rate and EOQ
H = 0.70*0.25 = 0.175
EOQ =(2*12000*15/0.175) = 1434
Total annual cost of EOQ policy = Ordering cost + Holding cost + Purchase cost =15*12000/1434 + 0.175*1434/2 + 0.7*12000
= $ 8,651
_____________
Now consider the next price level, P = 0.67
H = 0.67*0.25 = 0.1675
Total annual cost of Q=10000 ordering policy = Ordering cost + Holding cost + Purchase cost =15*12000/10000 + 0.1675*10000/2 + 0.67*12000
= $ 8,896
We see that total annual cost is lowest with EOQ policy.
Therefore, optimal ordering quantity = 1,434 boxes
b) Resulting annual cost = $ 8,896 (as already computed in part a)
c) Time interval between trips to the distributor = Q/(D/12) = 1434/1000 = 1.434 months
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