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 for 500​ people, 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.

follows≻For

a small order

​(2,000

pieces or​ less) her vendor quotes a price of

​$1.80/piece.

follows≻If

she orders

2,001

to

5,000

​pieces, the price drops to

​$1.60/piece.

follows > 5,001

to

10,000

pieces brings the price to

​$1.40/piece,

and

follows≻ 10,001

and above reduces the price to

​$1.25/piece.

​Lisa's order costs are

​$200

per​ order, her annual holding costs are

5%,

and the annual demand is

45,700

pieces. For the best option​ (the best option is the price level that results in an EOQ within the acceptable​ range):

​a) What is the optimum ordering​ quantity?

nothing

units ​(round your response to the nearest whole​ number).

B) What is the annual holding cost? ​(round your response to two decimal​ places).

C) What is the annual ordering cost? (round your response to two decimal​ places).

D) What are the annual cost of the silverware with an optimal order quantity? (round your response to two decimal​ places).

E) What is the total annual cost, including ordering, holding, and purchasing the silverware? ​(round your response to two decimal​ places).

Answer 1

Economic Order Quantity is the number of unit that is added to the inventory which minimize the total inventory cost. It maintain a balance between ordering costs and carrying costs.