Rocky Mountain Tire Center sells 8,000 go-cart tires per year. The ordering cost

Question

Rocky Mountain Tire Center sells 8,000 go-cart tires per year. The ordering cost for each order is $35, and the holding cost is 40% of the purchace price of the tires per year. The purchase price is $23 per tire if fewer than 200 tires are ordered, $19 per tire is 200 or more - but fewer than 5000 - tires are orderd and $13 per tire if 5,000 or more tires are ordered.

a. How many tires should Rocky Mountains tire order each time it time it places an order?

b. What is the total cost of this policy?

Explanation / Answer

a)

As we can find, the total cost is least when 5,000 or more units are ordered. So, option 3 should be selected.

b)

Total cost of the policy = $117,056.00

Input Data Demand rate, D 8000 Ordering cost, Co 35 Carrying cost %, I 40.00% (percentage) Range 1 Range 2 Range 3 Minimum quantity 1 200 5000 Unit purchase cost, P $23.00 $19.00 $13.00 Results Range 1 Range 2 Range 3 Economic order quantity, Q* 246.72 271.45 328.17 Adjusted order quantity 246.72 271.45 5000.00 Total holding cost 1,134.90 1,031.50 13,000.00 Total ordering cost 1,134.90 1,031.50 56.00 Total purchase cost 184,000.00 152,000.00 104,000.00 Total cost 186,269.80 154,063.01 117,056.00

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