A Chemical firm uses 800 lbs per month of an unstable chemical compound in its m
ID: 470922 • Letter: A
Question
A Chemical firm uses 800 lbs per month of an unstable chemical compound in its manufacturing process. This compound must be stored in an environmentally safe place as a result holding cost is 50% of the price of this compound and the estimated ordering cost is $ 50.00 per order. As a Purchasing Officer of the Firm, your assignment is to buy this chemical in a Quantity that would minimize the Total Cost. The supplier has provided you with following discount schedule:
Discount #
Quantity in LBS
Price/Lb
1
1-499
$ 17.00
2
500-999
$ 16.75
3
1000+
$ 16.50
According to your calculations the Discount that would minimize the Total cost is:
Answer
Discount #
Quantity in LBS
Price/Lb
1
1-499
$ 17.00
2
500-999
$ 16.75
3
1000+
$ 16.50
Explanation / Answer
EOQ = SQUARE ROOT OF [2*ANNUAL DEMAND*ORDERING COST PER ORDER/CARRYING COST PER UNIT]
SQUARE ROOT OF [2*800*12*50/0.5*17]
SQUARE ROOT OF [960000/8.5]
=336 UNITS
WE SHOULD CHOOSE OPTION - A- DISCOUNT#1
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