The catering manager of LaVista Hotel, Lisa Ferguson, is disturbed by the amount

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, 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 of $200 per order, her annual holding costs are 5%, and the annual demand is 45,000 pieces. For the best option, (the best option is the price leve that results in an EOQ within the acceptable range). A) What is the optimum ordering quantity? B) What is the annual holding cost? C) What is the annual ordering cost? D) What are the annual cost of the silverware with an optimal order quantity? E) What is the total annual cost, including ordering, holding, and purchasing the silverware?

Explanation / Answer

Annual Demand(D) =45000

Order cost (S) =200

Holding cost (H) =5% of Price

EOQ =SQRT(2SD/H)

Using the formula, the EOQ for each price range is as follows:-

The best option is the option of ordering in range of 10000+ at price of 1.25 per piece.

A. The optimal ordering quantity is 16,971.

B. Annual holding cost is HQ/2 =16971 *1.25*0.05/2= 530.33

C. Annual ordering cost =SD/Q =200 X 45000/16971= 530

D. Annual cost of silverware =PD= 1.25*45000= 56250

E. Total Annual cost of holding, ordering and purchasing silverware= B+C+D =530+530+56250= 57,310

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

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