Garden Variety Flower Shop uses 750 clay pots a month. The pots are purchased at

Question

Garden Variety Flower Shop uses 750 clay pots a month. The pots are purchased at $2 each. Annual carrying costs per pot are estimated to be 30 percent of cost, and ordering costs are $20 per order. The manager has been using an order size of 1,500 flower pots.

What additional annual cost is the shop incurring by staying with this order size? (Round your intermediate calculations and final answer to 2 decimal places. Omit the "$" sign in your response.)

Other than cost savings, what benefit would using the optimal order quantity yield? (Round your answer to the nearest whole percent. Omit the "%" sign in your response.)

what is the answer for B?

Garden Variety Flower Shop uses 750 clay pots a month. The pots are purchased at $2 each. Annual carrying costs per pot are estimated to be 30 percent of cost, and ordering costs are $20 per order. The manager has been using an order size of 1,500 flower pots.

Explanation / Answer

Solution :

Part 1 : EOQ anc Cost Calculation

EOQ = Sqrt ( 2 * Demand * Ordering Cost / Holding Cost) = Sqrt (2*9000*20/0.6) = 774.59 = 775nos

Annual cost = Ordering Cost + Holding Cost + Purchase Cost = 18464.76

Part 2 : Cost calculation as per order quantity - 1500nos

Annual Cost as per Order Quantity 1500 = 18570.

A : Additional Annual Cost : 105.24

B : With EOQ ordering following storage place will be needed = EOQ / Earlier Order Quantity = 775 / 1500 = 50%

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