6) Prince Pots - Use the following information to answer the ensuing questions.

ID: 2484413 • Letter: 6

Question

6) Prince Pots - Use the following information to answer the ensuing questions. Demand for pots is 26 pots a day. There are 260 working days in a year. It costs $65 to carry a pot in the warehouse over an entire year. Each order for pots cost $72. (a) Prince Pots is tooling around with a different idea of running a production facility to provide sheet metal for the pots. There are associated costs with running a production facility. Prince can produce 200 or less sheets of metal for $7 a piece. He can produce between 201 and 500 for $6 a sheet, and over 500 for $5 a sheet. How many sheets should Prince ask the production facility to produce in any given order? Interpret the costs for this EOQ. (b) Prince has found that the production facility can produce 35 sheets of metal a day. Assuming the demands given before part (a), how does the EOQ change from what is found in #5? Why did the EOQ change (in your own words)? (Part (a) has nothing to do with this question) 6) Prince Pots - Use the following information to answer the ensuing questions. Demand for pots is 26 pots a day. There are 260 working days in a year. It costs $65 to carry a pot in the warehouse over an entire year. Each order for pots cost $72. (a) Prince Pots is tooling around with a different idea of running a production facility to provide sheet metal for the pots. There are associated costs with running a production facility. Prince can produce 200 or less sheets of metal for $7 a piece. He can produce between 201 and 500 for $6 a sheet, and over 500 for $5 a sheet. How many sheets should Prince ask the production facility to produce in any given order? Interpret the costs for this EOQ. (b) Prince has found that the production facility can produce 35 sheets of metal a day. Assuming the demands given before part (a), how does the EOQ change from what is found in #5? Why did the EOQ change (in your own words)? (Part (a) has nothing to do with this question)

Explanation / Answer

per day demand

no of working days

260

Annual demand

6760

carring cost

65 per pot per year

ordering cost

72 per order

EOQ= square root(2*Demand*cost per order/carrying cost per order)

= SQRT(2*6720*72/65)

= 122.0138706

Ordering cost= (6760/122.014)*72= 3989.0504

Carrying cost= (122.014/2)*65= 3965.455

Total = 7954.5054

Order quantity

Production cost

Ordering cost

Carrring cost

Total

100

700

4,867

3,250

8,817

122.014

854

3,989

3,965

8,809

200

1,400

2,434

6,500

10,334

300

1,800

1,622

9,750

13,172

400

2,400

1,217

13,000

16,617

500

3,000

973

16,250

20,223

600

3,000

811

19,500

23,311

Answer a its best to order for 122.014 quantity