The American Airlines Center wants to explore their inventory policy on purchasi
ID: 447998 • Letter: T
Question
The American Airlines Center wants to explore their inventory policy on purchasing of hot dogs and hot dog buns. They are currently using 1000 cases of buns and 200 cases of hot dogs per month and ordering 2000 cases of buns and 400 cases of hot dogs at a time.
Buns
Hot Dogs
Order cost
$10
$15
Holding cost per case
$1
$0.30
Under their current ordering scheme, what is the total cost of each of the items?
Using an EOQ model, what would their total costs for each item be?
How much money does this save in total? (calculate savings for hot dogs and buns combined)
Their supplier has offered an alternative deal of placing a monthly order of 1000 cases of buns and 200 cases of hot dogs. In exchange for the fixed monthly order, the supplier will change the order cost for the hot dogs and buns to a $5 each per item each month. Should they take the supplier up on this offer?
The American Airlines Center wants to explore their inventory policy on purchasing of hot dogs and hot dog buns. They are currently using 1000 cases of buns and 200 cases of hot dogs per month and ordering 2000 cases of buns and 400 cases of hot dogs at a time.
Buns
Hot Dogs
Order cost
$10
$15
Holding cost per case
$1
$0.30
Under their current ordering scheme, what is the total cost of each of the items?
Using an EOQ model, what would their total costs for each item be?
How much money does this save in total? (calculate savings for hot dogs and buns combined)
Their supplier has offered an alternative deal of placing a monthly order of 1000 cases of buns and 200 cases of hot dogs. In exchange for the fixed monthly order, the supplier will change the order cost for the hot dogs and buns to a $5 each per item each month. Should they take the supplier up on this offer?
Explanation / Answer
Buns Hot Dogs Monthly Demand (A) 1000 200 Annual Demand (B = 12 *A ) 12000 2400 Ordering Cost ( C) $ 10.00 $ 15.00 Holding Cost (D) $ 1.00 $ 0.30 Order Size ( E) 2000 400 Total Total Holding Cost (Average Inventory * Holding Cost per unit = E/2 * D (F) $1,000.00 $60.00 $1,060.00 Total Ordering Cost (No of orders * Ordering Cost = B/E * C (G) $60.00 $90.00 $150.00 Total Annual Cost (H = F+G) $1,060.00 $150.00 $1,210.00 EOQ = 2AO / H where A = Annual Demand O = Ordering Cost per order H = Holding Cost per unit per annum EOQ = 2AO / H Buns = 2*12000 * 10 / 1 = 489.8979 490 Hot Dogs = 2*2400 * 15 / 0.30 = 489.8979 490 Total Total Holding Cost (Average Inventory * Holding Cost per unit = EOQ/2 * D (I) $245.00 $73.50 $318.50 Total Ordering Cost (No of orders * Ordering Cost = B/EOQ * C (J) $244.90 $73.47 $318.37 Total Annual Cost (K = I + J) $489.90 $146.97 $636.87 Annual Cost Savings (L = H - K) $570.10 $3.03 $573.13 Alternative Evaluation where order size is 1000 cases of buns and 200 cases of hot dogs Buns Hot Dogs Total Inventory Order Size (M) 1000 200 No of orders (Annual Demand/Order Quantity per order = N = B/M) 12 12 Ordering Cost (No orders * $5 = N*$5) (O) $60.00 $60.00 Carrying Cost (Order Size / 2 * Carrying Cost per unit per annum = M/2 * D) (P) $500.00 $30.00 Total Cost (Q = O + P) $560.00 $90.00 $650.00 Yes it is cost effective to switch the order size from current one, however EOQ method is still the cheapest
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.