Question

Chipper dog kennel's estimates an annual consumption of dog food at 2000 lbs. per year. The manager at Chipper dog kennel estimates a fixed cost of placing an order at $10 and holding costs estimates are based on a 15% annual interest rate. The supply company charges $50 per lb. for orders less than 500 lbs., $49 per lb. for orders of 500 or more but fewer than 1000 lbs.; and $48 per lb. for orders of 1000 lbs or more.

1. What is the largest realizable EOQ?

2. What is the optimal order size and the annual cost associated with placing that order?

3. Based on the optimal order size, how many orders are placed per year?

4. Based on the optimal order size, what is the time between orders?

Answer 1

A. 75

B. 1000 UNITS; 99620

C. 2 ORDERS

NO. OF ORDERS = DEMAND / EOQ * ORDERING COST = 2000 / 1000 = 2

D. NOT ENOUGH INFORMATION IS PROVIDED FOR THIS PART, WE NEED EITHER THE NUMBER OF WEEKS OR DAYS WE WORK IN ORDER TO CALCULATE THE DAILY DEMAND TO THEN WORK THE TIME BETWEEN ORDERS PROBLEM.

DEMAND = 2000

ORDERING COST = 10

HOLDING COST % = 15 %

EOQ = SQRT(2 * DEMAND * ORDERING COST / HOLDING COST)

ANNUAL HOLDING COST = ADJUSTED EOQ / 2 * HOLDING COST PER UNIT

ANNUAL ORDERING COST = (ANNUAL DEMAND / ADJUSTED EOQ) * ORDERING COST

ANNUAL MATERIAL COST = ANNUAL DEMAND * OFFERED PRICE PER UNIT

TOTAL COST OF INVENTORY = ANNUAL(HOLDING + ORDERING + MATERIAL)

OPTIMAL ORDER QUANTITY = 1000

ASSOCIATED COST = 99620

NO.	LOWER LIMIT	UPPER LIMIT	PER UNIT PRICE	ADJUSED HOLDING COST	EOQ	ADJUSTED QUANTITY	ANNUAL HOLDING COST	ANNUAL ORDER COST	ANNUAL MATERIAL COST	TOTAL COST OF INVENTORY
1	0	499	50	7.5	73	73	(73 / 2) * 7.5 = 273.75	2000 / 73 * 10 = 273.97	2000 * 50 = 100000	273.75 + 273.97 + 100000 = 100548
2	500	999	49	7.35	74	500	(500 / 2) * 7.35 = 1837.5	2000 / 500 * 10 = 40	2000 * 49 = 98000	1837.5 + 40 + 98000 = 99878
3	1000	OR MORE	48	7.2	75	1000	(1000 / 2) * 7.2 = 3600	2000 / 1000 * 10 = 20	2000 * 48 = 96000	3600 + 20 + 96000 = 99620

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