bell computers purchases integrated chips at 350 per chip. the holding cost is $
ID: 344672 • Letter: B
Question
bell computers purchases integrated chips at 350 per chip. the holding cost is $37 per unit per year. the ordering cost is $118 per order, sales are steady at 405 per month. the company supplier, rich blue chip manufacturing inc, decides to offer price concession in order to attract large orders. the price structure is shown below. quantity purchased 1-99 units price per unit $350, quantity purchased 100-199 unit price per unit $325, and quantity 200 or more units price per unit $300. What is the optimal order quantity and the minimum annual cost fpr Bell computers to order, purchase and hold these integrated chips? The optimal order quantity after the change in price structure is _________ units? The total annual cos
b) Bell Computers wishes to use a
(round your response to the nearest whole number). t for Bell computers to order, purchase and hold the integrated chips is $____________?
Explanation / Answer
Let's first calculate EOQ (economic order quantity) before the discounts.
The formula for EOQ = sqrt ( 2 x D x S / H)
Here
Hence, EQO = sqrt ( 2 x 4860 x 118 / 37 ) = 176.06
or EOQ = 176
The number of times order has to be place is D / EOQ = 4860 /176 = 27.6
or 28 times.
Inventory holding cost is ( EOQ / 2) x H = 176 / 2 x 37 = 3256
Ordering cost is D / EOQ x S = 4860 / 176 x 118 = 3258.4 or 3258
Hence the total annual cost is 3256 + 3258 = 6514
Now lets calculate with the new discount offers.
To begin, we have already calculated earlier that 176 is the optimal order number. However we have an option to order in the range of 1-99 or 200+. Currently we sit in the middle 100-199 and the purchase cost is $325. Let check the costs
Total cost = Inventory cost + Ordering Cost + Purchase cost
Order 99 (considering EOQ 99 and using previous formula)
Total cost = (99 /2 x 37 ) + ( 4860 / 99 x 118) + ( 99 x 350) = 1831 + 5792 + 34650 = 42273
Order 176
Total cost = 3256 + 3258 + (176 x 325) = 63714
Order 200 (considering EOQ 200 and using previous formula)
Total cost = (200 / 2 x 37) + (4860 / 200 x 118) + (200 x 300) = 3700 + 2867 + 60,000 = 66567
This shows that we can get a better cost benefit if we order 99. However, if we order 100 (better discount, we could fare better)
Order 100
Total cost = (100 / 2 x 37 ) + ( 4860 / 100 x 118) + ( 100 x 325) = 1850 + 5734 + 32500 = 40084
Hence the EOQ after the discount offer should be 100
and the Total annual cost is 40084
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.