Add1) David\'s Delicatessen sells a special Hebrew sausage. The owner, David Gol
ID: 368466 • Letter: A
Question
Add1) David's Delicatessen sells a special Hebrew sausage. The owner, David Gold, estimates that the demand for the sausage is steady at 100 pounds a week. The special sausage costs Mr. Gold $3.00 a pound. The costs of ordering and shipping from the supplier is $40 each order. Gold's accountant, Irving Wu, estimated an annual holding cost of the sausage is 20% of the sausage purchase cost. (52 weeks in a year)
How many pounds of the special sausage should Gold order each time to minimize the annual costs on holding and ordering? Calculate the annual total costs on holding, ordering, and cost to purchase the sausage?
Based of result of a), what is the average inventory level? How many times will Mr. Gold order each year?
Recently, Mr. Gold received the following offer from his supplier: If Gold can change his order quantity to order every six months, he can receive a 10% discount on sausage purchase cost
Should Gold accept the offer? (Cost analysis is required to receive credit.)
Assume that sausage can be sold at $6 per pound at regular selling price. However, since sausage is perishable product, Gold has to sell sausage at a discounted price of $5.0/per pound if they have stored in his store for more than 4 months. Should Gold still accept the supplier’s offer of ordering twice a year with the 10% discount in purchase price? (Cost analysis is needed to receive credit)
Explanation / Answer
Weekly demand, d = 100 lbs
Annual demand, D = 100*52 = 5200 lbs
Ordering cost, K = $ 40
Unit cost, C = $ 3 per lb
Holding cost, H = 3*20% = $ 0.6 per lb per year
a) Optimal order quantity using EOQ model = (2*D*K/H) = (2*5200*40/0.6) = 833 lbs
Total annual cost = Ordering cost + holding csot + cost to purchase sausage = (D/Q)*K + (Q/2)*H + D*C = (5200/833)*40 + (833/2)*0.6 + 5200*3 = $ 16,100
b) Average inventory level = Q/2 = 833/2 = 416
Number of orders per year = D/Q = 5200/833 = 6.25
c) Order quantity for order every six months = 5200/2 = 2600
Unit cost, C = 3*(1-10%) = 2.7
Holding cost, H = 2.7*20% = 0.54
Total annual cost = (D/Q)*K + (Q/2)*H + D*C = (5200/2600)*40 + (2600/2)*0.54 + 5200*2.7 = $ 14,822
Total annual cost is lesser than ealier, so Gold should accept the offer.
d) In this case, 2 months inventory in every six months would be sold at a discount of $ 1 over the normal price.
Total annual cost of obsolescnece = (52000/12)*4*1 = $ 17,333
Now the total annual cost = 14822 + 17333 = 32,155
This cost is way more than the cost calculated in part (a) So Gold should not accept the offer.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.