Bell computers purchases integrated chips at $350 per chip. The holding cost is
ID: 449575 • Letter: B
Question
Bell computers purchases integrated chips at $350 per chip. The holding cost is $36 per unit per year. the ordering cost is $118 per order, sales are steady at 400 per month. the company supplier, Rich Blue Chip Manufacturing Inc, decides to offer price concession in order to attract large orders. the price structure is shown below.
What is the optimal order quantity and the minimum annual cost fpr Bell computers to order, purchase and hold these integrated chips?
The optimal order quantity after the change in price structure is _________ units?
The total annual cost for Bell computers to order, purchase and hold the integrated chips is $____________?
Rich Blue Chip's Price Structure Quantity Purchased 1-99 units 100-199 units 200 or more units Price/Unit S350 S325 $300Explanation / Answer
1.
Demand (D)=400
Holding Cost (H) =36 per unit per year
Ordering cost (S)=118 per oder
Optimal Order quantity (EOQ ) is given by
EOQ =SQRT(2SD/H)= SQRT( 2 X 118 X 400/36)=51.2= 52 units
Annual cost= 118 X400/52+36 X 52/2 +350 X 400 =141843
The above quantity 52 comes in 1-99 units price range.
we will test the costs for 100,199,200,400 and find out the range which gives optimal cost
The cost for 100 =132,272
The cost for 199 =133,820
The cost of 200 =123,836
The cost of 400 =127,318
The optimal quantity in new price structure is 200 units as anything above will increase holding cost
The total annual cost is 123,836
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