The vendor inside Kent City Coliseum uses about 1,300 boxes of plastic cups annu
ID: 448839 • Letter: T
Question
The vendor inside Kent City Coliseum uses about 1,300 boxes of plastic cups annually for soft drinks and beer. There are 1,000 cups in a box. The cups are purchased from a manufacturer in Michigan. The annual carrying cost per box is calculated as 25 percent of the purchase price, and the ordering cost is $50. A box of plastic cups cost $40. However for an order of 100 boxes or more, the cost is $38 per box and for an order of 400 boxes or more it cost $37. Suppose the coliseum opens 200 days per year and the lead time for the order is 4 days. What inventory model is appropriate?A. EOQ B. EPQ C.Discount quantity D. Periodic review
How many boxes should the vendor order each time? A. 100 B. 110 C. 300 D. 400
What is the minimum total annual cost of handling ordering and purchase? A. $38,554 B. $42,271 C. $46,400 D. $50,113
What is the reorder point? A. 20 boxes B. 22 C. 24 D. 26 The vendor inside Kent City Coliseum uses about 1,300 boxes of plastic cups annually for soft drinks and beer. There are 1,000 cups in a box. The cups are purchased from a manufacturer in Michigan. The annual carrying cost per box is calculated as 25 percent of the purchase price, and the ordering cost is $50. A box of plastic cups cost $40. However for an order of 100 boxes or more, the cost is $38 per box and for an order of 400 boxes or more it cost $37. Suppose the coliseum opens 200 days per year and the lead time for the order is 4 days. What inventory model is appropriate?
A. EOQ B. EPQ C.Discount quantity D. Periodic review
How many boxes should the vendor order each time? A. 100 B. 110 C. 300 D. 400
What is the minimum total annual cost of handling ordering and purchase? A. $38,554 B. $42,271 C. $46,400 D. $50,113
What is the reorder point? A. 20 boxes B. 22 C. 24 D. 26
A. EOQ B. EPQ C.Discount quantity D. Periodic review
How many boxes should the vendor order each time? A. 100 B. 110 C. 300 D. 400
What is the minimum total annual cost of handling ordering and purchase? A. $38,554 B. $42,271 C. $46,400 D. $50,113
What is the reorder point? A. 20 boxes B. 22 C. 24 D. 26
Explanation / Answer
Annual Demand 1300 Ordering Cost $ 50.00 Carrying Cost - 25% of price ($40) $ 10.00 a. EOQ = 2AO / C where A = Annual Demand O = Ordering Cost per order C = Carrying Cost per unit per annum Initial EOQ at base price EOQ = 2AO / C = (2 * 1300 * 50) / 10 = 114.0175 units or, 114 units Since supplier gives discount when qty ordered is more than 100, hence EOQ needs to be calculated at each price range Supplier gives disount offer if qty purchased is between 100-400 units, at Price - $38 When Price is $ 38, Carrying cost = $ 9.5 EOQ = 2AO / C = (2 * 1300 * 50) / 9.50 = 116.9795 units or 117 units Supplier gives disount offer if qty purchased is 400 units or more. Price - $37 When Price is $ 37, Carrying cost = $ 9.25 EOQ = 2AO / C = (2 * 1300 * 50) / 9.25 = 118.5498 units or 119 units This is not feasible solution as qty ordered has to be more than 400 units. Hence optimal order qty will occur at lowest of range that is 400 units and for 0-100 units at higher end of range, i.e 100 units EOQ - 117 units 0 - 100 - End of range 400 or more - Beginning of range Inventory Order Size (A) 100 117 400 Price (B) 40.00 38.00 37.00 Direct Cost (Price * Annual Demand = B*1300) (C) $52,000.00 $49,400.00 $48,100.00 No of orders (Annual Demand/Order Quantity per order = 1300 / A) (D) 13 11 3 Ordering Cost (No orders * $ 50 = D *$50) ( E) $650.00 $555.56 $162.50 Carrying Cost per unit (25% * B) (F) 10.00 9.50 9.25 Carrying Cost (Order Size / 2 * Carrying Cost per unit per annum = A/2 * F) (G) $500.00 $555.75 $1,850.00 Total Cost (B+E+G) $53,150.00 $50,511.31 $50,112.50 Since the total cost is lowest at 400 units, this is the optimal order quantity. Total Cost of Ordering Optimal Order quanity = $ 50,112.50 1. Hence, Quantity Discount model is most appropriate for company. The correct answer is Option C 2. The quantity ordered each time is 400 units. Hence the correct answer is Option D. 3. As computed above, the mimimum cost of handling order and purchase is $50,113. Hence, correct answer is option D. 4. Reorder Point is Average demand during lead time. Lead Time = 4 days Demand in Lead Time = 1300 / 200 * 4 = 26 boxes Reorder Point = 26 boxes. Hence the correct answer is Option D.
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