Happy Pet Inc., is a large pet store located in Long Beach Mall. Although the st
ID: 449820 • Letter: H
Question
Happy Pet Inc., is a large pet store located in Long Beach Mall. Although the store specializes in dogs, it also sells fish, turtle, and bird supplies. Happy Pet, Inc., is a large pet store located in Long Beach Mall. Although the store specializes in dogs, it also sells fish, turtle, and bird supplies. The Everlast Leader, a leather lead for dogs, costs Happy Pet $7 each. There is an annual demand for 6,000 Everlast Leaders. The manager has determined that the ordering cost is $20 per order and the carrying cost, as a percentage of unit cost, is 15%.
Happy Pet is now considering a new supplier of Everlast Leaders. Each lead would cost only $6.65; but in order to get this discount, Happy Pet would have to buy shipments of 3,000 at a time. Should Happy Pet use the new supplier and take this discount for quantity buying?
The total cost without the discount is $___ (enter your response rounded to two decimal places)
The total cost with the discount is $___ (enter your response rounded to two decimal places)
Should Happy Pet use the new supplier and take this discount for quantity buying?
Explanation / Answer
If happy pet continues with current arrangement
EOQ=sqrt(2*D*O/H) where D=demand O=ordering Cost H=holding Cost
hence EOQ=Sqrt(2*6000*20/(0.15*7))=478
hence Total Cost=O*D/Q +H*Q/2 +PD=20*6000/478 + 0.15*7*478/2 +7*6000=42501.99
O=Ordering Cost
H=Holding cost
Q=qty demanded per order
P=price
D=annual demand
if happy pet uses the new model
TC=20*6000/3000 +0.15*6.65*3000/2 +6.65*6000=41436.25 hence it is advisable to use the discount model for ordering
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