Joe Birra needs to purchase malt for his micro-brew production. His supplier cha
ID: 369501 • Letter: J
Question
Joe Birra needs to purchase malt for his micro-brew production. His supplier charges $35 per delivery (no matter how much is delivered) and $1.05 per gallon Joe's annual holding cost is 25% of the price per gallon. Joe uses 225 gallons of malt per week. a. Suppose Joe orders 750 gallons each time. What is his average inventory? gallons Round your answer to 2 decimal places.) Suppose Joe orders 2000 gallons each time. How many orders does he place with his supplier each year? b. How many gallons should Joe order from his supplier with each order to minimize gallons Round your answer to 3 decimal places.) Suppose Joe orders 3000 gallons each time he places an order with the supplier. What is the sum of ordering and holding costs per gallon? d. per gallon Round your answer to 2 decimal places.) Suppose Joe orders the quantity from part (c) that minimizes the sum of the ordering and holding costs each time he places an order with the supplier. What is the annual cost of the E00 expressed as a percentage of the annual purchase cost? t If Joe's supplier only accepts orders that are an integer multiple of 1,000 gallons gallons how much should Joe order to minimize ordering and holding costs per gallon? Joe's supplier offers a 3.00% discount if Joe is willing to purchase 8000 gallons or he were to take advantage of the discount? g.more. What would Joe's total annual cost (purchasing, ordering and holding) be ifExplanation / Answer
Average inventory = (opening inventory + closing inventory) / 2
It is also stated as (Minimum inventory + Maximum inventory) / 2
Answer a
Assuming that the order quantity 750 each time reaches when the stock in hand is zero, then Average=750/2=375
Answer b
Given per week demand is 225 gallons, therefore Annual (52 weeks in a year) demand = 225*52
Therefore number of orders in a year when Joe orders 2000 each time = 225*52/2000 = 5.85 or say six
Answer c
Economic Order Quantity model gives the optimal order quantity to have minimum of sum of ordering and holding costs. Formula for EOQ = SQRT(2AD/h) where A is the annual demand, D ordering cost per order, h is holding cost per unit per annum.
In the present case A=225*52=11700, Ordering Cost = $35 per order, Holding cost = 25% of $1.05
Therefore optimal order quantity is 1766 per order
Answer d
Placing an order 3000 unit each time means Average Inventory = 3000/2=1500, number of orders = 11700/3000
Therefore ordering cost = 35*11700/3000 =136.5
Inventory holding cost = .25*1.05*1500=393.75
Sum of ordering and holding costs = 136.5+393.75=530.25
Answer e
Number of orders = 11700/EOQ therefore Ordering cost = 35*11700/1776.352 = 231.83
Average Inventory = EOQ/2 therefore Holding cost = .25*1.05*1776.352/2 = 231.83
Total ordering plus holding costs = 231.83+231.83 = 463.66
Answer f
Order quantity should be 2000 units as per following cal culations
A 11700 D 35 h 0.2625 2AD/h 3120000 EOQ 1766.352Related Questions
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