Hello, Please show all work. Thank you in advance. Stores carres a custom, ortho
ID: 325403 • Letter: H
Question
Hello, Please show all work. Thank you in advance.Stores carres a custom, orthopedic athletic shoe for women that sells at a rate of 500 pairs every three months. The store's current policy is to order 500 pairs time an order is placed. Placing an order cost S30 The annual holding rate is 20% with the order quantity of 500, Shamel obtains the shoes at the lowest possible unit cost of S130 per pair. Other quantity discounts offered by the shoe manufacturer are listed below: each Price per Pair $150 $140 S130 Order Quantity 1-99 100-199 200 or more a. What is the minimum-cost order quantity for the shoes? points What are the annual savings of your inventory policy over the policy currently being used by Shamel? b (to points)
Explanation / Answer
a) Annual demand = 500 * 4
Annual demand = 2000 units
holding cost = 0.20 * $ 150
EOQ = 99 units
If order between 1-99 units
Total cost = ordering cost + holding cost
Total cost = ( D/Q) * $ 30 + ( Q/2) * 0.20 * $ 150
TC = ( 2000 / 99) * $ 30 + ( 99/2) * 0.20 * $ 150
TC = $ 2091.06
If ordered between 100- 199
EOQ = 199 units
TC = ( 2000 / 199) * $ 30 + ( 199/2) * 0.20 * $ 140
TC = $ 3087.51
_____________________________________________
Total cost of existing policy = ( 2000/ 500) * $ 30 + ( 500/2) * 0.20 * 130
TC of existing policy = $ 6,620
__________________________________________________
Thus the savings incurred by following your policy over the existing policy = $ 6,620 - $ $ 2091.06
Thus the savings incurred by following your policy over the existing policy = $ 4,528.94
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