In: Advanced Math
Ahsa Mfg. Brian Mfg.
Quantity Price/unit Quantity Price/unit
1- 199 $20.00 1 – 299 $20.00
200 – 399 $19.80 300 – 599 $19.75
400+ $19.60 600+ $19.50
What is the optimal order quantity? Which supplier should be used?
Monthly demand = 500 units
Yearly demand = 500 x 12 = 6000 Units
Ordering cost = $25
Holding cost = $15 per unit per year
Optimal Order quantity = EOQ = Sqrt [(2 x Annual demand x Ordering cost) / Holding cost]
= Sqrt [(2 x 6000 x 25) / 15]
= 141.42 Units (Approx.)
Number of orders per year = Annual demand / EOQ
= 6000 / 141.42
= 42.43 orders (Approx.)
Annual Ordering cost = No of orders per year x Per order cost
= 42.43 x 25 = $1060.75
Average annual inventory = 141.42 / 2 = 70.71 Units (Approx.)
Annual Holding cost = Average annual inventory x Holding cost per unit per year
= 70.71 x 15
= $1060.65
CASE 1: ASHA MANUFACTURING
Purchase price = $20
Total cost of purchasing = Annual demand x price per unit
= 6000 x 20
= $120,000
Total Annual cost = Total cost of purchasing + Annual holding cost + Annual ordering cost
= 120,000 + 1060.75 + 1060.65
= $122121.40
CASE 2: BRIAN MANUFACTURING
Purchase price = $20
Total cost of purchasing = Annual demand x price per unit
= 6000 x 20
= $120,000
Total Annual cost = Total cost of purchasing + Annual holding cost + Annual ordering cost
= 120,000 + 1060.75 + 1060.65
= $122121.40
Both Brian and Asha Manufacturing have the same total cost. Either of them can be chosen