Question Help gone out on bid for a reguator component. Expected demand is 700 u
ID: 430541 • Letter: Q
Question
Question Help gone out on bid for a reguator component. Expected demand is 700 units per month. The item can be purchased from either Alen Manufacturing or Baker Manufacturing. Their prioe lists are shown in the table. Ordering cost is $45, and annual holding cost per unit is $A Allen Mfg Baker Mfg Price Quantity Unit Price $16.10 15.60 15.10 Unit Price Quantity 1-499 500-999 000+ 1-399 15.50 15.00 400-799 800+ units (round your response o the nearest whole number, What is the economic order quantity if price is not a consideration?Explanation / Answer
1. EOQ = [ 2 x demand per annum x ordering cost / holding cost per year]1/2
= [ 2x700x12x45/4]1/2 = 434.74 = 435
2. Allen Manufacturing shcould be used as it has lower per unit price.
3. Costs will all three options
Option A - using EOQ
No of orders - 12x700 /435 = 19.31 = 20
Ordering cost = 45x20 =900
Purchasing cost = 8400x16 =134400
Holding cost = 435/2x4 = 870
Total cost in case A = 900+870+134400 = 136170
Case B - Using quantity 500
Purchasing cost = 8400x15.5 = 130200
No. of orders = 8400/500 = 16.8 =17
Ordering cost = 17x45 = 765
Holding cost = 500/2 x 4 =1000
Total cost = 130200+765+1000 = 131965
Case C - Using quantity 1000
Purchasing cost = 8400x15 = 126000
Ordering cost = no of orders x45
no of orders = 8400/1000 =9
Ordering cost = 9x45 =405
Holding cost = 1000/2 x4 = 2000
Total cost in case C = 126000+405+2000 = 128405
Hence option C is the most lucrative with quantity 1000
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