Rocky Mountain Tire Center sells 6,000 go-cart tires per year. The ordering cost

Question

Rocky Mountain Tire Center sells 6,000 go-cart tires per year. The ordering cost for each order is $40, and the holding cost is 50% of the purchase price of the tires per year. The purchase price is $19 per tire if fewer than 200 tires are ordered, $17 per tire if 200 or more, but fewer than 5000, tires are ordered, and $15 per tire if 5000 or more tires are ordered. a) How many tires should Rocky Mountain order each time it places an order? Rocky Mountain's optimal order quantity is ??? units (enter your response as a whole number).

Explanation / Answer

Part A.

Economic Order Quantity using equation

Q* = (2DS/IP)

Where,
Q= Quantity Ordered
D = Annual Demand
S = Ordering or setup cost per order
P = Price per unit
H = Holding Cost per year
IP = percent (I) of unit price (P) where holding cost is 50% of purchase price => IP = 0.5

Q1* = ((2(6000)(40))/((.5)(19.00)))

Q1* = 50526.32
Q1* = 224.78 225 units per order

Q2* = ((2(6000)(40))/((.5)(17.00)))

Q2* = 56470.59
Q2* = 237.64 238 units per order

Q3* = ((2(6000)(40))/((.5)(15.00)))

Q3* = 64000
Q3* = 252.98 253 units per order

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.