A computer equipment retailer has four retail locations. Currently each outlet m
ID: 464540 • Letter: A
Question
A computer equipment retailer has four retail locations. Currently each outlet manages Us ordering independently. Demand at each retail outlet averages 4,000 units per week, Each unit costs $200; the holding cost is 20% per annum. The fixed cost of each order (administrative plus transportation) is $900. Assume 50 weeks in a year. If the purchasing centralizes purchasing (for all four outlets), the retailer will only have to place a single order for all the outlets. The supplier will deliver the order on a common truck to a transit point and individual outlet requirements are identical. The total order is split equally and shipped to the retailers from this transit point. The entire operation has Increased the fixed cost of placing.in order to $1,800. II the Inventory cost under decentralization (each outlet orders Individually) is $120,000, how much is the company saving as the result of centralization? Select one: $339,411 $120,000 $480,000 $140,589
Explanation / Answer
Decentralized Centralization D/week/location 4000 Annual Demand/retailer 200000 16000 units/week 800000 annual Unit cost 200 Holding cost 20% (=20%of $200) 40 Ordering Cost 900 1,800 Weeks/year 50 Inventory cost 1,20,000 Holding cost 24,000 EOQ 3000 8485 TC = units cost+holding cost+ordering cost unit cost 4,00,00,000 unit cost 16,00,00,000 holding cost 60,000 holding cost 1,69,706 oredring cost 60,000 oredring cost 1,69,706 total cost/retailer 4,01,20,000 total cost 16,03,39,411 total cost 16,04,80,000 savings, $ 1,40,589 (=160480000 - 160339411) Hence, D is correct
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