Garden Variety Flower Shop uses 910 clay pots a month. The pots are purchased at
ID: 363371 • Letter: G
Question
Garden Variety Flower Shop uses 910 clay pots a month. The pots are purchased at $3.80 each. Annual carrying costs per pot are estimated to be 20 percent of cost, and ordering costs are $15 per order. The manager has been using an order size of 1,750 flower pots.
What additional annual cost is the shop incurring by staying with this order size? (Round your optimal order quantity to the nearest whole number. Round all other intermediate calculations and your final answer to 2 decimal places. Omit the "$" sign in your response.)
Other than cost savings, what benefit would using the optimal order quantity yield (relative to the order size of 1,750)? (Use the rounded order quantity from Part a. Round your final answer to the nearest whole percent. Omit the "%" sign in your response.)
Garden Variety Flower Shop uses 910 clay pots a month. The pots are purchased at $3.80 each. Annual carrying costs per pot are estimated to be 20 percent of cost, and ordering costs are $15 per order. The manager has been using an order size of 1,750 flower pots.
Explanation / Answer
Annual Demand (D) = 910*12 = 10920
Holding cost (H) = Purchased price*20% = 3.8*20% = 0.76
Ordering cost (S) = 15
Q = 1750
Cost = Holding cost + Ordering cost = Q/2*H + D/Q*S
For Q = 1750, Cost = 1750/2*0.76 + 10920/1750*15 = 758.6$
EOQ = sqrt(2*D*S/H) = sqrt(2*10920*15/0.76) = 657
For Q = 657, Cost = 657/2*0.76 + 10920/657*15 = 498.98
a) Additional cost = 758.6 - 498.98 = 259.62
b) Now space required will be of 657 units
Space saving = 1750-657 = 1093
In % = 1093/1750*100 = 62%
ANs 62
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