Question

In: Operations Management

A bakery buys flour in 25-pound bags. The bakery uses 1,215 bags a year. Ordering cost...

A bakery buys flour in 25-pound bags. The bakery uses 1,215 bags a year. Ordering cost is $10 per order. Annual carrying cost is $75 per bag.

You have calculated an EOQ of 18 bags. At that quantity your supplier's sales price is $4 per bag

The supplier tells you that if you buy in quantities of 25 bags, you will only have to pay $3.75 per bag

If total cost is your primary concern, should you buy in quantities of 25?

Group of answer choices

a) No, because the non-discounted price is $5,480

b) Yes, because the discounted cost is $5,980

c) Yes, because the discounted cost is $5,480

d) No, because the non-discounted cost is $6,210

Expert Solution

Annual demand (D) = 1215 bags

Ordering cost (S) = $10

Carrying cost (H) = 75

a) Economic order quantity (EOQ) = 18 bags

At EOQ the price per unit (P) = $4

At EOQ

Annual ordering cost = (D/EOQ)S = (1215/18)10 = $675
Annual carrying cost = (EOQ/2)H = (18/2)75 = $675
Annual purchase cost = (P × D) = 4 × 1215 = $4860
Total cost at EOQ = Annual ordering cost + Annual carrying cost + Annual purchase cost = $675 + $675 + $4860 = $6210

b) if the order quantity (Q) = 25 bags

Price Per unit (P) = $3.75

At Q

Annual ordering cost = (D/Q)S = (1215/25)10 = $486
Annual carrying cost = (Q/2)H = (25/2)75 = $937.5
Annual purchase cost = (P × D) = 3.75 × 1215 = $4556.25
Total cost at Q = Annual ordering cost + Annual carrying cost + Annual purchase cost = $486 + $937.5 + $4556.25 = $5979.75 or rounded to $5980

So it should be bought in quantities of 25 as it has the lowest total cost

Therefore the answer is option b , Yes, because the discounted cost is $5980

keosha answered 3 months ago

Healthy Foods Inc. sells 50-pound bags of grapes to the military for $25 a bag. The...

Healthy Foods Inc. sells 50-pound bags of grapes to the military for $25 a bag. The fixed costs of this operation are $95,000, while the variable costs of grapes are $0.25 per pound. a. What is the break-even point in bags? (Round your answer to 2 decimal places.) b. Calculate the profit or loss (EBIT) on 10,000 bags and on 31,000 bags. c. What is the degree of operating leverage at 22,000 bags and at 31,000 bags? (Round...

A company uses 1,000 electric drills per year in its production process. The ordering cost is...

A company uses 1,000 electric drills per year in its production process. The ordering cost is $100 per order, and the carrying cost is assumed to be 40% of the unit cost. In orders of less than 120, drills cost $78 per unit; for orders of 120 or more, the price drops to $50 per unit. Find the best ordering quantity for this product Please show excel formulas and solver. Thank you.

Durham Company uses a job-ordering cost system. The following transaction took place last year: a. Raw...

Durham Company uses a job-ordering cost system. The following transaction took place last year: a. Raw materials requisitioned for use in production , $53,000( 75% direct and 25% indirect) b. Factory utility costs incurred, $15,900 c. Depreciation recorded on plant and equipment, $30,600. Three-fourths of the depreciation relates to factor equipment, and remainder relates to selling and administrative equipment d. Costs for salaries and wages were incurred as follows: Direct labor...........$53,000 Indirect Labor.......$19,300 Sales commissions.....$11,300 Administrative salaries.....$38,000 e. Insurance costs...

Aninvestor buys a property for $687,000 with a 25-year mortgage andmonthly payments at 6.3%...

An investor buys a property for $687,000 with a 25-year mortgage and monthly payments at 6.3% APR. After 18 months the investor resells the property for $749,484. How much cash will the investor have made from the sale, once the mortgage is paid off?

An investor buys a property for $608,000 with a 25-year mortgage and monthly payments at 8.10%...

An investor buys a property for $608,000 with a 25-year mortgage and monthly payments at 8.10% APR. After 18 months the investor resells the property for $667,525. How much cash will the investor have from the sale, once the mortgage is paid off?

bob buys a property for $140,000. He is offered a 25-year loan by the bank, at...

bob buys a property for $140,000. He is offered a 25-year loan by the bank, at an interest rate of 6.88% per year. What is the annual loan payment Dan must make? ________. A businessman wants to buy a truck. The dealer offers to sell the truck for either $145,000 now, or 7 yearly payments of $24,000. What interest rate would make these two options financially equivalent?

An investor buys a property for $608,000 with a 25-year mortgage that requires monthly payments at...

An investor buys a property for $608,000 with a 25-year mortgage that requires monthly payments at 5.10% APR. After 18 months the investor resells the property for $667,525. How much cash will the investor have from the sale, once the mortgage is paid off? Round to the nearest dollar.

the KIA company needs 6000 car tires per year. the ordering cost for these is 120$...

the KIA company needs 6000 car tires per year. the ordering cost for these is 120$ per order and the holding cost is assumed to be 50% of the per unit cost. in orders of less than 225 tires cost $80. for orders of 225 or more, the cost drops to $70 per unit. should KIA take advantage of the quantity discount?

Maria Bakery is considering a 3-year project with an initial cost of $93,000. The project will...

Maria Bakery is considering a 3-year project with an initial cost of $93,000. The project will not directly produce any sales but will reduce operating costs by $31,000 a year. The equipment is classified as MACRS 7-year property. The MACRS table values are .1429, .2449, .1749, .1249, .0893, .0892, .0893, and .0446 for Years 1 to 8, respectively. At the end of the project, the equipment will be sold for an estimated $43,270. The tax rate is 34 percent and...

A 60-year old person buys a 25-year term annuity in arrears contract for a single upfront...

A 60-year old person buys a 25-year term annuity in arrears contract for a single upfront premium of $1,000,000. Interest earnt by the insurance company is assumed to be 5% over the first 10 years of the contract and then 4% for the remaining term. The amount paid in the first 10 years is two-thirds of the amount paid in the remaining 15 years. Find out the amount paid in year 1 of the contract. Assume that select mortality applies...