P301 problem 9 P301 problem 9 A large Internet Retail Distributor uses 24000 box
ID: 345130 • Letter: P
Question
P301 problem 9 P301 problem 9 A large Internet Retail Distributor uses 24000 boxes P301 Problem 9 A large Internet Retail Distributor uses 24000 boxes each month to pack and ship its goods. The boxes cost $1.20 each. The company estimates the annual holding cost for a box at 30% of the box cost. The purchasing department of the company estimates 2 that the cost to place an order is $15 1) The purchasing manager in charge of packing materials currently orders boxes once a month. Using this ordering method what is the annual total cost of ordering and storing these boxes? 4 2) What would the EOQ be for the boxes? 3) How much would the total cost to order and store these boxes be reduced if the s purchasing manager used the EOQ rather than ordering once a month? 9 10 Problem S ReadyExplanation / Answer
EOQ= (2xDXS)/H
Where
H= Holding cost =0.40
S= Cost per order = 15
D= Annual Demand = 24000*12 = 288000
EOQ = (2xDXS)/H =(2*288000*15)/0.40 =4647.58
No. of orders done = Demand/EOQ = 288000/4647.58= 61.96
Total annual cost = Annual Holding cost + Annual ordering cost
Annual holding cost is (EOQ/2) x H = (4647.58/2)x0.40 = 929.516
Annual Ordering cost = No. of orders x order cost per order = 61.96*15 = 929.4
So,Total annual cost = 929.516+ 929.4 = 1858.916
In case of ordering once a month
Annual holding cost is (Q/2) x H = (24000/2)*0.4=4800
Annual Ordering cost = No. of orders x order cost per order = 12*15 = 180
Total cost = 4980
Difference between EoQ orders and once a month order = 4980 - 1858.916 = 3121.084
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