mework-Edwin Jones- Mozilla Firefox https://www atd.com Student PlayerHomework.a

ID: 393071 • Letter: M

Question

mework-Edwin Jones- Mozilla Firefox https://www atd.com Student PlayerHomework.aspx homework d-0691 1866&quest T4333 FALL 2018 ··. mework: HW8 F18 (30 Save s) re: 0 of 1 pt oblem 12.22 HW Score: 0%, 0 of 2 pts 1 of 2 (0 complete) Question Help * Bell Computers purchases integrated chips at $350 per chip. The holding cost is $37 per unit per year, the ordering cost is $118 per order, and sales are steady at 395 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 Rich Blue Chip's Price Structure 1-99 units 100-199 units 200 or more units Price/Unit $350 $325 $300 a) What is the optimal order quantity integrated chips? and the minimum annual cost for Bell Computers to order, purchase, and hold these The optimal order quantity after the change in pricing structure is 200 units (enter your response as a whole number). The total annual cost for Bel computers to order, purchase, and hold the integrated chips is s 1428497 (round your response to the nearest whole number). b) Bell Computers wishes to use a 10% holding cost rather than the fixed $37 holding cost in part a. What is the optimal order quantity, and what is the optimal annual cost? The optimal order quantity after the change in the holding cost calculation isunits (onter your response as a whole number) The total annual cost for Beil computers to order, purchase, and hold the integrated chips is s to the nearest whole number) (round your response Enter your answer in the edit fields and then click Check Answer Al parts showing Clear Aln

Explanation / Answer

PLEASE FIND BELOW ANSWER TO QUESTION B :

Following are the details provided for Bell computers :

Annual sales for Bell computers = D = 395/ month x 12 months = 4740 units

Ordering cost = Co = $118

Let, unit holding cost of integrated chip = Ch = 10% of unit price of the product

Since price will vary depending on the quantity slab , Ch will also vary accordingly

The formula for economic Order Quantity ( EOQ ) = Square root ( 2 x Co x D/Ch )

Based on above formula , following table presents corresponding values of Ch as well as EOQ

Quantity slab

Price / unit, $

Ch , $ ( annual unit holding cost)

EOQ ( rounded to nearest whole number )

1 – 99

350

179

100 – 199

325

32.5

186

200 or more units

300

193

As it can be seen from above, the calculated value of EOQ matches with the corresponding quantity slab for 2nd row only. Therefore correct economic Order quantity ( EOQ ) is 186 only.

However EOQ only ensures minimization of ( annual ordering cost + Annual holding cost)

But, for optimal order quantity, we need to minimize ( annual chip purchase cost + annual ordering cost + annual holding cost ) . It is to be noted that unit chip price for quantity 200 or more will be less than EOQ of 186.

Therefore, we need to compare total cost for order quantity = 186 and order quantity = 200

For order quantity = 186 :

Annual purchase cost = $325 X 4740 = $1540500

Annual ordering cost = Co x D / order quantity = $118 x 4740 / 186 = $3007.09

Annual holding cost = Ch x Order quantity / 2 = $32.5 x 186 / 2 = $3022.50

Total cost = $1540500 + $3007.09 + $3022.50 = $1546529.59

For order quantity = 200 :

Annual purchase cost = $300/ unit x 4740 units = $ 1422000

Annual ordering cost = Co x D / order quantity = $118 x 4740 / 200 = $2796.6

Annual holding cost = Ch x Order quantity / 2 = $30 x 200 /2 = $3000

Total cost = $1422000 + $2796.6 + $3000 = $1427796.60 ( $1427797 rounded to nearest whole number )

As it is evident,

Total cost for order quantity of 200 < Total cost for order quantity 186

Therefore , optimal order quantity = 200

Optimal order quantity after the change in calculation = 200

The total annual cost for Bell computers to order, purchase and hold the integrated chips is = $1427797