The UWM Bookstore orders coffee mugs out of a catalog from a supplier. The deman
ID: 2646761 • Letter: T
Question
The UWM Bookstore orders coffee mugs out of a catalog from a supplier. The demand for these coffee mugs is 1,849 per year. There is a $45 charge for placing an order and the cost per coffee mug to hold it in inventory for the year is $2.50. a) What is the economic order quantity? For part b) assume the cost of the coffee mugs are based on the quantity ordered at one time. If less than 200 are ordered, the unit price is $7.25, if 200-499 are ordered the unit price is $7.00, if 500 to 999 are ordered, the unit price is $6.95, and if 1000 or more are ordered the unit price is $6.75. b) What order quantity will result in the lowest total annual cost to the UWM Bookstore? Be sure to show your work for full credit.Explanation / Answer
a) Economic order Quantity = (2CO/i)^(1/2)
Economic order Quantity = (2*1849*45/2.50)^(1/2)
Economic order Quantity = 258 Units
b)
At Economic order Quantity i.e 258 Unit is the Lowest total annual cost
At each level Annual cost
At lees than 200 Unit :
Annual Cost = 7.25*1849 + 1849/199 * 45 + 199/2*2.5
Annual Cost = $ 14072
At 258 Unit ie economic oder:
Annual Cost = 7.00*1849 + 1849/258 * 45 + 258/2*2.5
Annual Cost = $ 13,588
At 500 Unit :
Annual Cost = 6.95*1849 + 1849/500 * 45 + 500/2*2.5
Annual Cost = $ 13,641.96
At 1000 Unit :
Annual Cost = 6.75*1849 + 1849/1000 * 45 + 1000/2*2.5
Annual Cost = $ 13,813.96
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