Problemo uno Pied Piper purchases integrated chips at $330/chip. The holding cos

ID: 390347 • Letter: P

Question

Problemo uno

Pied Piper purchases integrated chips at $330/chip. The holding cost is assessed at 12% on the dollar,

the ordering cost is $110/order and sales are steady at 425/month. The company’s supplier, AMD decides to

offer price concessions in order to attract larger orders as shown below.

0 – 124 units, cost = $330/chip

125 – 224 units, cost = $300/chip

225 or more, cost = $275/chip

(a) Determine how many chips the company should order each time it places an order and total cost? (8 marks)

(b) How many orders will be placed each year and what is the time (days) between each order? (1+2=3 marks)

Annual Demand (D)= 425 units

Holding cost(h) = 12%

Ordering cost(s)= $110

Quantity

Unit Price

0 to 99

$15

100 to 4999

$14

5000 and over

$13

Q(p=330)= [(2*425*110)/(0.12*330)]^0.5 = 48.59 units = 49 units

Q(p=300)= [(2*425*110)/(0.12*300)]^0.5 = 50.96 units = 51 units

Q(p=275)= [(2*425*110)/(0.12*275)]^0.5 = 53.22 units = 54 units

a) EOQ= 49 units

TC(EOQ= 49) = [(425*110)/49] + [(49/2)*0.12*330] + [330*425] =$142174.28

b) No of orders = D/EOQ = 425/49 =8.67 times = 9 times

Time between orders = Q/D = 49/425 = 0.11*365 = 42.08 days

Quantity

Unit Price

0 to 99

$15

100 to 4999

$14

5000 and over

$13

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