PA 12-1 Millennium Liquors is a wholesaler... Millennium Liquors is a wholesaler
ID: 385308 • Letter: P
Question
PA 12-1 Millennium Liquors is a wholesaler... Millennium Liquors is a wholesaler of sparkling wines. Their most popular product is the French Bete Noire which is shipped directly from France. Weekly demand is for 50 cases. Millennium purchases each case for $100, there is a $275 fixed cost for each order (independent of the quantity ordered) and their annual holding cost is 15 percent. What order quantity minimizes Millennium's annual ordering and holding a- costs? cases If Millennium chooses to order 250 cases each time, what is the sum of their annual ordering and holding costs? (Round your answer to 2 decimal places.) If Millennium chooses to order 75 cases each time, what is the sum of the ordering and holding costs incurred by each case sold? per case If Millennium is restricted to order in multiples of 50 cases (e.g., 50, 100, 150, holding costs? Millennium is offered a 5.00% discount if they purchase at least 1,000 cases annual ordering and holding costs? d. etc.) how many cases should they order to minimize their annual ordering and cases e. If they decide to take advantage of this discount, what is the sum of theirExplanation / Answer
It is assumed that there are 52 weeks in the year.
A.
EOQ = (2*annual demand*ordering cost/holding cost)^.5
EOQ = (2*52*50*275/(.15*100))^.5
EOQ = 308.76 or 309 cases
So, at 309 cases, the annual ordering and holding cost will be minimum.
B.
If 250 cases are ordered each time.
Annual ordering and holding cost = (annual demand/250)*ordering cost + (ordering quantity/2)*holding cost per unit per year
Annual ordering and holding cost = ((52*50)/250)*275 + (250/2)*(.15*100)
Annual ordering and holding cost = $4735
C.
If 75 cases are ordered each time.
Annual ordering and holding cost = (annual demand/75)*ordering cost + (ordering quantity/2)*holding cost per unit per year
Annual ordering and holding cost = ((52*50)/75)*275 + (75/2)*(.15*100)
Annual ordering and holding cost = $10095.83
Annual ordering and holding cost per case = Annual ordering and holding cost/annual demand
Annual ordering and holding cost per case = 10095.83/(52*50) = $3.88 per case
D.
EOQ is 309 cases (as per the calculations in part A).
Hence, either 300 cases or 350 cases will be ordered.
At 300 cases,
Annual ordering and holding cost = ((52*50)/300)*275 + (300/2)*(.15*100) = $4633.33
At 350 cases,
Annual ordering and holding cost = ((52*50)/350)*275 + (350/2)*(.15*100)
Annual ordering and holding cost = $4667.85
Since the Annual ordering and holding cost is lowest at the ordering quantity of 300 cases, then 300 cases should be ordered.
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