lease do not cut and past someone else answer. There is multiple answers to this
ID: 450160 • Letter: L
Question
lease do not cut and past someone else answer. There is multiple answers to this problem so I need a fresh person to answer this from scratch. Thanks
Douglas Boats is a supplier of boating equipment for the states of Oregon and Washington. It sells 5,000 White Marine WM-4 diesel engines every year. These engines are shipped to Douglas in a shipping container of 100 cubic feet, and Douglas Boats keeps the warehouse full of these WM-4 motors. The warehouse can hold 5,000 cubic feet of boating supplies. Douglas estimates that the ordering cost is $50 per order, and the carrying cost is estimated to be $50 per motor per year. Douglas Boats is considering the possibility of expanding the warehouse for the WM-4 motors.
B. How much would it be worth for the company to make the expansion? Assume demand is constant throughout the year.
Explanation / Answer
The total cost would be minimum for the company, if it produces and stores the quantity as determined by Economic Order Quantity (EOQ) approach. for that we need to calculate the EOQ, which is calculated as below :
EOQ = (2 x Demand x Ordering Cost / Carrying cost)^0.5
In the question it is given that Dougla Boats supplies 5000 enginers in a shipping container of 100 cubic feet and it has a warehouse which can hold 5000 cubic feet of boating suppliers. So the warehouse capacity is more than enough to keep 100 engines . and there is no need for expansion of the warehouse.
Annual Demand (D) = 5000 Ordering cost (O) = $50 Carrying cost (C) = $50 Economic Order Quantity (EOQ) = 100.00EOQ = (2 x Demand x Ordering Cost / Carrying cost)^0.5
In the question it is given that Dougla Boats supplies 5000 enginers in a shipping container of 100 cubic feet and it has a warehouse which can hold 5000 cubic feet of boating suppliers. So the warehouse capacity is more than enough to keep 100 engines . and there is no need for expansion of the warehouse.
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