Bell Computers purchases integrated chips at $350 per chip. The holding cost is
ID: 374880 • Letter: B
Question
Bell Computers purchases integrated chips at $350 per chip. The holding cost is $35 per unit per year, the ordering cost is $120 per order, and sales are steady, at 400 per month. The company’s supplier, Rich Blue Chip Manufacturing, Inc., decides to offer price concessions in order to attract larger orders. The price structure is shown below.
QUANTITY PURCHASED
PRICE/UNIT
1–99 units
$350
100–199 units
$325
200 or more units
$300
Rich Blue Chip’s Price Structure
a. What is the optimal order quantity and the minimum annual cost for Bell Computers to order, purchase, and hold these integrated chips?
b. Bell Computers wishes to use a 10% holding cost rather than the fixed $35 holding cost in option a. What is the optimal order quantity, and what is the optimal annual cost?
***please don't post the answer that is in the "textbook solutions" part of this website. It is extremely confusing their steps. Please post step by step process. thanks
QUANTITY PURCHASED
PRICE/UNIT
1–99 units
$350
100–199 units
$325
200 or more units
$300
Rich Blue Chip’s Price Structure
Explanation / Answer
Annual demand, D = 400*12 = 4800
Ordering cost, S = 120
Holding cost, H = 35
a) Starting with first price slab,
Unit Price, P = 350
EOQ = (2DS/H) = (2*4800*120/35) = 181
This quantity is in the range of 100-199. Therefore, applicable price is 325
Total annual inventory related cost = (D/Q)*S + (Q/2)*H + D*P = (4800/181)*120 + (181/2)*35 + 4800*325 = $ 1,566,350
For next level, quantity, Q = 200, total annual inventory related cost = (4800/200)*120 + (200/2)*35 + 4800*300 = $ 1,446,380
Total cost is less for Q= 200. Therefore, optimal order quantity = 200 .
Optimal annual cost = $ 1,446,380
________________________________________
b) Holding cost for unit price of 325, H = 325*10% = 32.5
EOQ = (2DS/H) = (2*4800*120/32.5) = 188
Total annual inventory related cost = (D/Q)*S + (Q/2)*H + D*P = (4800/188)*120 + (188/2)*32.5 + 4800*325 = $ 1,566,119
For next level, quantity, Q = 200, holding cost = 300*10% = 30.
Total annual inventory related cost = (4800/200)*120 + (200/2)*30 + 4800*300 = $ 1,445,880
Total cost is less for Q= 200. Therefore, optimal order quantity = 200 .
Optimal annual cost = $ 1,445,880
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.