The catering manager of LaVista Hotel, Lisa Ferguson, is disturbed by the amount

Question

The catering manager of LaVista Hotel, Lisa Ferguson, is disturbed by the amount of silverware she is losing every week. Last Friday night, when her crew tried to set up for a banquet for 500 people, they did not have enough knives. She decides she needs to order some more silverware, but wants to take advantage of any quantity discounts her vendor will offer.

For a small order 2,000 pieces or less) her vendor quotes a price of $1.80 per piece. If she orders 2,001 to 5,000 pieces, the price drops to $1.60 per piece.5,001 to 10,000 pieces brings the price to $1.40 per piece, and 10,001and above reduces the price to $1.25 per piece.Lisa's order costs are$195 per order, her annual holding costs are 55%, and the annual demand is 48,400 pieces. For the best option (the best option is the price level that results in an EOQ within the acceptable range):

a) What is the optimum ordering quantity?

Explanation / Answer

Demand (D) = 48,400, Order Cost (S) = $ 195,  Holding costs(I) = 55% of unit price, P=$1.25 H = IP (0.55)*1.25

Optimum orderingquantity (Q*)

(Q*) = 2DS/IP

=square root of (2*48400*195/0.55*1.25)

=square root of (18876000/0.6875)

=square root of (27456000)

=5239.8473

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