The catering manager of LaVista Hotel, Lisa Ferguson, is disturbed by the amount
ID: 381345 • Letter: T
Question
The catering manager of LaVista Hotel, Lisa Ferguson, is disturbed by the amount of silverware she is losing every week. Last Friday night, when her crew tried to set up for a banquet for 500 people, they did not have enough knives. She decides she needs to order some more silverware, but wants to take advantage of any quantity discounts her vendor will offer. For a small order (2,000 pieces or less) her vendor quotes a price of $1.80/piece. >If she orders 2,001 to 5,000 pieces, the price drops to $1.60/piece 5,001 to 10,000 pieces brings the price to $1.40/piece, and 10,001 and above reduces the price to $1.25/piece Lisa's order costs are $205 per order, her annual holding costs are 5%, and the annual demand is 45,300 pieces. For the best option (the best option is the price level that results in an EOQ within the acceptable range): a) What is the optimum ordering quantity? units (round your response to the nearest whole number). b) What is the annual holding cost? (round your response to two decimal places). c) What is the annual ordering cost? (round your response to two decimal places. d) What are the annual costs of the silverware itself with an optimal order quantity?(round your response to the nearest whole number). e) What is the total annual cost, including ordering, holding, and purchasing the silverware? S(round your response to two decimal places)Explanation / Answer
Let .
The annual demand = D = 45300 pieces
Ordering cost = Co = $205 / order
Annual unit inventory holding cost = Ch = 5% of unit price
Since price fluctuates with quantity slabs , Ch will also vary depending on quantity slab
The formula for EOQ as follows :
EOQ = Square root ( 2 x Co x D / Ch )
Following table illustrates Ch and derived values of EOQ at different quantity slabs :
Quantity slab
Unit price, $/ unit
Annual unit holding cost, Ch ( 5% of unit price )
Derived EOQ
( rounded to nearest whole number )
1 – 2000
1.8
0.09
14365
2001 – 5000
1.6
0.08
15237
5001 – 10000
1.4
0.07
16289
10001 and above
1.25
0.0625
17239
The derived EOQ which matches with corresponding quantity slab is 17239 ( for quantity slab 10001 and above )
Hence optimal order quantity = 17239
OPTIMAL ORDER QUANTITY = 17239
Annual holding cost = Ch x Average inventory = Ch x EOQ/2 = 0.0625 x 17239 / 2= $ 538.72
Annual ordering cost = Ordering cost x Number of orders = Co x D /EOQ = $ 205 X 45300/17239 = $538.69
Annual cost of silverware = Unit price x Annual demand = $ 1.25 x 45300 = $56625
Total annual cost , including ordering , holding and purchasing the silverware
= $538.72 + $538.69 + $56625
= $57702.41
Quantity slab
Unit price, $/ unit
Annual unit holding cost, Ch ( 5% of unit price )
Derived EOQ
( rounded to nearest whole number )
1 – 2000
1.8
0.09
14365
2001 – 5000
1.6
0.08
15237
5001 – 10000
1.4
0.07
16289
10001 and above
1.25
0.0625
17239
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.