A. Trial and error (approx.) method 1. Approximately what quantity Q minimizes t

Question

A. Trial and error (approx.) method

1. Approximately what quantity Q minimizes total annual ordering & holding costs? _____ boxes

please show work

The situation: Rachel is responsible for purchasing the paper used in all copy machines and laser printers at Costco. After looking at her records, Roxie has found demand for paper averages 600 boxes per month. The price of a box of paper is $20 (regardless of the number ordered). Placing and handling an order costs $70. Annual unit holding costs per box are 25% of the unit price. Last year, Rachel ordered paper once every 2 months, but she wants to know if another ordering policy would be cheaper.

Explanation / Answer

We change the value of Q and get the best total cost.

So Q = 450 or 449 or 448 (But 449 is the optimal)

Current policy Changing the value of Q D Annual demand 7200 Q Order quantity 1200 ( for 2 months) 600 500 450 449 448 K Order cost 70 70 70 70 70 70 h Holding cot 5 -25% 5 5 5 5 5 P Price 20 20 20 20 20 20 N Total orders 6 12 14.4 16.00 16.04 16.07 (N*K) TOC Total ordering cost 420 840 1008 1120 1122.5 1125 (h*Q/2) THC Total holding cot 3000 1500 1250 1125 1122.5 1120 TC Total cost 3420 2340 2258 2245 2245 2245

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