Garden Variety Flower Shop uses 550 clay pots a month. The pots are purchased at
ID: 331248 • Letter: G
Question
Garden Variety Flower Shop uses 550 clay pots a month. The pots are purchased at $3.00 each. Annual carrying costs per pot are estimated to be 30 percent of cost, and ordering costs are $20 per order. The manager has been using an order size of 1,500 flower pots. a. Other than cost savings, what benefit would using the optimal order quantity yield (relative to the order size of 1,500)? (Use the rounded order quantity from Part a. Round your final answer to the nearest whole percent. Omit the "%" sign in your response.) About % of the storage space would be needed.
Explanation / Answer
Given are following details :
Annual demand = D = 550 / month x 12 = 6600 clay pots
Ordering cost = Co = $20/ order
Annual unit carrying cost = Ch = 30 % of $3 = $ 0.9
Therefore , optimal order quantity ( EOQ )
= Square root ( 2 x Co x D/ Ch )
= Square root ( 2 x 20 x 6600 / 0.9)
= 516.39 ( 516 rounded to nearest whole number )
To be noted:
Optimal order quantity / current order size x 100 = 516/ 1500 x 100 = 34.4 %
Answer : 34.4% of the storage space would be needed
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