a. EOQ = Square(2xdemandxcost per order / Holding cost) = 108.46 Holding cost =

Question

a. EOQ = Square(2xdemandxcost per order / Holding cost) = 108.46

Holding cost = .17 x 140 = 23.8 / case, Item cost= 140, Ordering cost =200

Total Inventory cost = 2581 ( ordering costxdemand / EOQ + Holding cost x EOQ / 2)

Total inventory cost would be higher if any purchases are made at any other quantity other than EOQ.

b. Optimal Quantity for the price of second discount option would be (Considering total cost due to EOQ as it is lower):

Holding cost = .17 x 137 = 23.29

Hence,

Applying total inventory cost forumula :

2581 = 200 x 700 / Q + 23.29 x Q / 2

Calculating for Q, gives two different values = 94.73,126.90

Explanation / Answer

Memorable Knights has a mumber of contracts to plan and execute promotional events for large for-profit and non-profit organizations. Such events usually publicize products and services or support fundraising and typically include full or limited catering Owing to the scale of their operations Memorable Knights tends to purchase and inventory supplies in bulk One item used at virtually every Memorable Knights erent is the ubiquitous 16-ounce red Solo cup. Last year Memorable Knights used 700,000 of these for all its events. The usual vendor ships these to Memorable Knights in cases packed with 1000 cups and to stimulate sales is offering a quantity discount arrangament. Base Price: The vendor prices case-quantities of 16-ounce cups at $140. Memorable Knights pays shipping and of course must handle and hold the cases in its storage warehouse. They estimate ordering costs at roughly 5200 per order and annual holding costs in their inventory at 17% of item value. Discount Option 1: The vendor will discount the per-case price to $138.25 on all orders for at least 300 cases. Discount Option 2: The vendor will give a further per-case discount price of $137.00 on all orders of at least 600 cases. Given the vendor's price schedule, would it be least expensive (considering ordering cost, holding cost, and item price) for MIemorable Knights to purchase cases of Solo cups according to EOQ, or at another quantity? a. b. Memorable Knights likes the case price offered on Discount Option 2, but the quantity which must be purchased to qualify for that price is too high If Option 2's price is retained what quantity will result in a total annual cost equal to that of Option 1 or the Base Price, whichever is less?

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.