Question

Cafeteria is going to purchase plastic sets of fork, knife, spoon for the people who buy “to go” lunch. For orders less than 100 sets, the cafeteria is charged 30 cents per set. For orders more than 100 but fewer than 500, the cafeteria is charged 20 cents per set. For orders above 500, the cafeteria is charged 15 cents per set. Suppose that ordering cost is $8 per order, holding cost per set per year is 20% of the price of the set. Annual plastic set demand is constant at 900.

C1: x <= 500

C2: X > 500 <= 1,000

C3: X > 1,000

a) Set up the problem: What are the costs and demands (S, H, D)? Also decide whether the quantity discount affects the holding cost per set per time.

b) Compute the EOQ quantity.

c) Find the optimal number of sets to purchase.

Answer 1

For Orders Less than 100 Sets, Cafeteria Charge 30 cents per set

For Orders more than 100 Sets but fewer than 500 Sets, Cafeteria Charge 20 cents per set

For Orders above 500 Hundreds, Cafeteria Charge 15 Cents per Set

Question A:

Answer

Ordering Cost or S = USD 8 per Order

Annual plastic Set Demand D = 900

H = Holding Cost per set per year = 20 % of the Price of One Set = 20% * 15 as Demand is Fixed and 900 Sets which is more than 500 sets = USD 3

So now It is Clear that Quantity Discount affects the Holding cost per set per time as Cafeteria Charge is different for Different quantities

Question B:

Answer

EOQ Quantity = Square Root of [(2 X D X S)/H] = Square Root of [(2 X 900 X 8)/3] =   Square Root [4800] =69.28 = 69 Set

Question C:

Answer: The Optimal Number of sets to Purchase would be 69 Set which is calculated from EOQ Quantity