My Kitchen Delights (MKD) is considering two new suppliers for the jars used in

Question

My Kitchen Delights (MKD) is considering two new suppliers for the jars used in the production process. The quality at both suppliers is equal. Assume that the annual holding cost is 30 percent of the unit price. Monthly demand averages 20.000 Jars Ordering cost with these two suppliers Is $30 per order. The price lists for the Supplier are as follows: Determine the optimal EOQ MKD can use when accepting Supplier A offer jars Determine the optimal EOQ MKD can use when accepting Supplier B offer jars

Explanation / Answer

EOQ = sqrt(2AD/h)

A = Annual demand (expected) = 12*20000 = 240000

D = Order cost = 30

h = holding cost = 0.3*P

For Supplier A

EOQ of 4140 units is feasible as it is within its price break range

Supplier B

EOQ of 4178 units is feasible as it is within its price break range

Supplier A Annual demand 240000 240000 240000 240000 Order cost 30 30 30 30 Holding cost 30% 0.3 0.3 0.3 0.3 Price range 2.7 2.8 2.9 3.0 EOQ 4216 4140 4068 4000

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