Bell Computers purchases integrated chips at $350 per chip. The holding cost is
ID: 368225 • 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
$123
per order, and sales are steady at
400
per month. The company's supplier, Rich Blue Chip Manufacturing, Inc., decides to offer price concessions in order to attract larger orders. The price structure is shown below.
Rich Blue Chip's Price Structure
Quantity Purchased
Price/Unit
1-99 units
$350
100-199 units
$325
200 or more units
$300
a) What is the optimal order quantity and the minimum annual cost for Bell Computers to order, purchase, and hold these integrated chips?
The optimal order quantity after the change in pricing structure is
____units (enter your response as a whole number).
The total annual cost for Bell computers to order, purchase, and hold the integrated chips is
$____
(round your response to the nearest whole number)
Rich Blue Chip's Price Structure
Quantity Purchased
Price/Unit
1-99 units
$350
100-199 units
$325
200 or more units
$300
Eall Comput puncha ingrabed chipa at S34 per thip. Tha hoiaing ctis S pr unt par year, the ordanng cs is 5123 parardr and ar tcady at 403 per menth. Tha companysupplier, Hch Elue Cip arutactunng irc., decdas te ater price conesiors n arder to attact lagar orda The pnc sucture s Price Structure 200 or more unitz 5300 a) what is the optimal order quartit, ond te mirimum annua coat fo. Beli Cempuner: to order, purchase·and hold these integrated chips? thip:? Ths optimal order quanity efterths chane in pncing tructure 9 units (onter your roccence aawncle nuExplanation / Answer
The Optimal Order Quantity ( EQ ) will be defined as :
EOQ = Square root ( 2 x Co x D / Ch)
Co = Ordering cost = $123 per order
Ch = Holding cost = $37 per unit per order
D = Annual demand = 400 / month x 12 months = 4800
Therefore ,
EOQ = Square root ( 2 x 123 x 4800 / 37)
= 178.64 ( 179 rounded to nearest while number )
Thus ,
Optimal Order Quantity = 179
Thus,
Annual Purchase cost = Unit price x Annual Demand = $360/ chip x 4800 chips = $1728,000
Annual ordering cost
= Ordering cost x Number of orders in a year
= Co x Annual demand / EOQ
= 123 x 4800 / 179
= $3298.32
Annual inventory holding cost
= Annual unit holding cost x Average inventory
= Ch x EOQ/ 2
= 37 x 179/2
= $3311.50
Thus, Total annual cost for Bell computers
= Annual purchase cost + Annual Ordering cost + Annual inventory holding cost
= $1728000 + $3298.32 + $3311.50
= $1734609.82
TOTAL ANNUAL COST FOR BELL COMPUTERS = $1734609.82
TOTAL ANNUAL COST FOR BELL COMPUTERS = $1734609.82
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