A particular raw material is available to a company at threedifferent prices, de
ID: 2661751 • Letter: A
Question
A particular raw material is available to a company at threedifferent prices, depending on the size of the orderLess than 100pounds $20 per pound
100 pounds to 1,000pounds $19 per pound
more than 1,000pounds $18 per pound
The cost to place an order is $40. Annual demand is 3,000 units.Holding (or carrying) cost is 25 percent of the material price.
What is the economic order quantity to buy each time?
Explanation / Answer
Given orders &prices
Less than 100 pounds : $20 per pound
100 – 1000 pounds : $ 19 per pound
More than 1000 pounds : $ 18 per pound
Ordering cost per order =Co = $40
AnnualDemand =D = 3000 units
Carrying cost per unit per annum = Ch =25%
Ch: Less than 100pounds : $20 perpound : 20*25%=$5
100 – 1000 pounds : $ 19 perpound : 19*25%=$4.75
More than 1000 pounds : $ 18 perpound : 18*25%=$4.5
Economic orderquantity:
EOQ = (2 DCo) / Ch
If less than 100pounds : (2*3000*40)/5 = 219pounds
100-1000 pounds : (2*3000*40)/4.75 = 224 pounds
More than 1000ponds : (2*3000*40)/4.5 =230pounds
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