12. One of the products stocked by a Sam\'s Club store is Sams Cola, which is so
ID: 378026 • Letter: 1
Question
12. One of the products stocked by a Sam's Club store is Sams Cola, which is sold in cases. The demand level for Sams Cola is highly seasonal: During the slow season, the demand rate is approxi- mately 650 cases a month, which is the same as a yearly demand rate of 650*12 = 7,800 cases. During the busy season, the demand rate is approxi- mately 1,300 cases a month, or 15,600 cases a year. The cost to place an order is $5, and the yearly holding cost for a case of Sams Cola is $12. . a. (*) According to the EOQ formula, how many cases of Sams Cola should be ordered at a time during the slow season? How many cases of Sams Cola should be ordered during the busy season? )Suppose Sam's Club decides to use the same or- der quantity, Q = 150, throughout the year. Calculate total holding and ordering costs for the year. Do not consider safety stock in your calculations. (Annual de- mand can be calculated as an average of the slow and b. (*) usy rates given above.) store manager has de-Explanation / Answer
A.
When there is a slow season
EOQ = (2*annual demand*ordering cost/holding cost)^.5
EOQ = (2*650*12*5/12)^.5 = 80.62 or 81 cases
When there is a busy season
EOQ = (2*annual demand*ordering cost/holding cost)^.5
EOQ = (2*1300*12*5/12)^.5 = 114.02 or 114 cases
B.
Annual demand = average demand of slow and busy season
Annual demand = (7800+15600)/2 = 11700 cases
If order quantity (Q) = 150 case per order
Total holding cost = (Q/2)* holding cost per case per year = (150/2)*12
Total holding cost = $900
Total ordering cost = (Annual demand/Q)*ordering cost = (11700/150)*5
Total ordering cost = $390
Hence,
Total holding and ordering cost = 900+390
Total holding and ordering cost = $1290
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