Rocky Mountain Tire Center sells 9,000 go-cart tires per year. The ordering cost

Question

Rocky Mountain Tire Center sells 9,000 go-cart tires per year. The ordering cost for each order is $40, and the holding cost is 50% of the purchace price of the tires per year. The purchase price is $24 per tire if fewer than 200 tires are ordered, $18 per tire is 200 or more - but fewer than 5000 - tires are ordered and $15 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

D = annual demand = 9000 tires
S = ordering cost = $40
H = holding cost = 50% x C

We will not consider any order quantity below the feasible EOQ.

(a)

Optimal order quantity should be 5,000.

(b)

Total cost = $153,822

Range
suffix Order qty.
(Q) Purchase price
(C) Holding cost
(H) EOQ
= SQRT(2.D.S/H) Remarks 1 < 200 $24 $12.0 245 Infeasible 2 200 to 4999 $18 $9.0 283 Feasible 3 >= 5000 $15 $7.5 310 Infeasible

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