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 $205 per order, her annual holding costs are 5%, and the annual demand is 44,600 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?

Answer 1

DEMAND = 44600

ORDERING COST = 205

HOLDING COST % = 5 %

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 = 17105

ASSOCIATED COST = 56819

NO.	LOWER LIMIT	UPPER LIMIT	PER UNIT PRICE	ADJUSTED HOLDING COST	EOQ	ADJUSTED QUANTITY	ANNUAL HOLDING COST	ANNUAL ORDER COST	ANNUAL MATERIAL COST	TOTAL COST OF INVENTORY
1	0	2000	1.8	0.09	14254	2000	(2000 / 2) * 0.09 = 90	44600 / 2000 * 205 = 4571.5	44600 * 1.8 = 80280	90 + 4571.5 + 80280 = 84942
2	2001	5000	1.6	0.08	15119	5000	(5000 / 2) * 0.08 = 200	44600 / 5000 * 205 = 1828.6	44600 * 1.6 = 71360	200 + 1828.6 + 71360 = 73389
3	5001	10000	1.4	0.07	16163	10000	(10000 / 2) * 0.07 = 350	44600 / 10000 * 205 = 914.3	44600 * 1.4 = 62440.	350 + 914.3 + 62440 = 63704
4	10001	& MORE	1.25	0.0625	17105	17105	(17105 / 2) * 0.0625 = 534.53	44600 / 17105 * 205 = 534.52	44600 * 1.25 = 55750	534.53 + 534.52 + 55750 = 56819

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