Question

1. Scenario 11.4 - The Gutter
   
   A rodent infestation has left a landlord with a major cleanup job; in fact, the cleanup will consist of ripping out all the walls and ceilings of an 1860 square foot house to replace them. A trip to the local home improvement store reveals that 4'x8' sheets of drywall have three price points as indicated in the table. Another consideration for the landlord is that he is equipped with only a humble half-ton pickup truck, that can hold at most 20 sheets. His truck sips fuel, so he considers only wear and tear on his vehicle at $5 to haul all the sheets he will use for the job. The holding percentage is 20%. The landlord believes the entire job - all walls and ceiling - will require 10,080 square feet of drywall.
   

   Purchase Quantity	Price Per Sheet
   1-20	$9.40
   21-100	$9.30
   101 or more	$9.20

   
   
   Use the information in Scenario 11.4 to determine the total holding cost resulting from purchasing the optimal number of sheets per order. Assume he can buy only an integer-multiple of sheets.

   		$38.27
   		$92.92
   		$64.23
   		$15.59

Answer 1

Given: Demand = 10080 Sq. ft

Size of each sheet = 4 * 8 = 32 sq. ft

No. of sheets required D = 10080 / 32 = 315 sheets

Capacity of truck = 20 * 32 = 640 sq. ft.

Ordering cost = S = $5

Let Price P = $9.40 per sheet

Holding cost = H = 20% = 20% * 9.40 = $1.88

Economic Ordering Quantity = EOQ = = = 40.93 sheets = 41 sheet

Now, 41 sheets fall under range of 21 to 100 sheets.

For this range price = $9.30, H = 20% * 9.30 = $1.86

Hence, we recalaculate EOQ as:

EOQ = = = 41.15 sheets = 41 sheets

We find Total costs for it as shown below:

Total costs = Purchasing cost + Holding cost + Ordering cost = D * P + = 315 * 9.30 + = 2,929.5‬ + 38.13 + 38.41 = $3,006.04

Now, for range of 101 or more, we select the order quantity of 101, since it is closest to EOQ in this range.

P = 9.20, H = 20%*9.20 = $1.84‬

Total costs = Purchasing cost + Holding cost + Ordering cost = D * P + = 315 * 9.20 + = 2,898‬‬ + 92.92‬ + 15.59 = $3,006.51‬

Now, for range of 1 to 20, we select the order quantity of 20, since it is closest to EOQ in this range.

P = 9.40, H = 20%*9.40 = $1.88

Total costs = Purchasing cost + Holding cost + Ordering cost = D * P + = 315 * 9.40 + = 2,961‬‬ + 18.8‬ + 78.75 = $3,058.55‬

As seen from above, Cost for order quantity is almost same for 41 sheets or 101 sheets order. However, as per options given, the option for $92.92 macthes to holding cost of 101 sheets

Hence, Answer = $92.92

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