I need help with Part B Garden Variety Flower Shop uses 740 clay pots a month. T

Question

I need help with Part B

Garden Variety Flower Shop uses 740 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 $20 per order. The manager has been using an order size of 1,500 flower pots. a. What additional annual cost is the shop incurring by staying with this order size? (Round your intermediate calculations and final answer to 2 decimal places. Omit the "$" sign in your response.) Additional annual cost 106.75 b. 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.) About% of the storage space would be needed.

Explanation / Answer

D = Annual demand = 740 x 12 = 8,880
S = ordering cost = $20
H = carrying cost = 30% x $2 = $0.6 per unit per annum

(a)

EOQ = Q* = (2.D.S / H)1/2 = sqrt(2*8880*20 / 0.6) = 769.4

Additional cost incurred = (8880/1500)*20 + (1500*0.6/2) - (8880/769.4)*20 - (769.4*0.6/2) = $106.75

(b)

Max. Inventory earlier = 1500
Max. Inventory under EOQ = 769.4

Sotrage space required under EOQ = 769.4/1500 = 51.29% of what it is now

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