Question

In: Operations Management

Bob oversees purchasing surgical supplies for a Hospital. Sam is evaluating scalpels for the hospital's surgical...

Bob oversees purchasing surgical supplies for a Hospital. Sam is evaluating scalpels for the hospital's surgical use. The quantity—price schedules for X is given in the following table. The annual demand for scalpels is 10,000 units. The ordering cost is $150 per order and the annual carrying cost is $1.95 per unit.

X
Quantity Ordered	Price per unit (in U.S. dollars)
0 to 2,999	10.00
3,000 to 4,999	9.75
5,000 to 7,999	9.25
8,000+	9.00

What is the economic order quantity that should be ordered from X?

Solutions

Expert Solution

Annual demand, D = 10,000 units

The ordering cost, S = $150 per order

Annual carrying cost, H = $1.95 per unit

EOQ = sqrt(2DS/H)

= sqrt(2*10000*150/1.95)

= 1240 units

For this quantity, unit price, c = $ 10

Total annual cost = Purchase cost + Ordering cost + Carrying cost

= D*c+S*D/Q+H*Q/2

= 10000*10+150*10000/1240+1.95*1240/2

= $ 102,419

--------------------------------------------

For unit price, c = $ 9.75, MOQ = 3000 units

Total annual cost = 10000*9.75+150*10000/3000+1.95*3000/2

= $ 100,925

--------------------------------------------

For unit price, c = $ 9.25, MOQ = 5000 units

Total annual cost = 10000*9.25+150*10000/5000+1.95*5000/2

= $ 97,675

--------------------------------------------

For unit price, c = $ 9.00, MOQ = 8000 units

Total annual cost = 10000*9.00+150*10000/8000+1.95*8000/2

= $ 97,987.5

--------------------------------------------

Lowest total annual cost is $ 97,675 for order quantity of 5000 units

Therefore, economic order quantity that should be order from McKesson = 5,000 units

keosha answered 1 year ago

Next > < Previous

Related Solutions

General Hospital's CDSC is contemplating purchasing a blood gases analysis machine at a cost of $960,000....

General Hospital's CDSC is contemplating purchasing a blood gases analysis machine at a cost of $960,000. Useful like is 10 years. The screening center currently serves 3,000 patients per year, 40% who need blood analysis data as part of their diagnosis tests. The blood samples are presently sent to a private laboratory that charges $200 per sample. In-house variable expenses are estimated to be $125 per sample if the CDSC purchases the analysis machine. Use the Goal Seek function in...

M&M buys surgical supplies from manufacturers and resells these supplies to hospitals. In the face of...

M&M buys surgical supplies from manufacturers and resells these supplies to hospitals. In the face of declining profits, M&M decided to implement an activity-based costing system to improve its understanding of costs incurred to serve each hospital. The company broke its selling and administrative expenses into four activities as indicated: Cost Pool Cost Driver (activity Measure) Total Cost Total Activity Customer Delivers Number of Delivers $ 400,000 5,000 delivers Electronic Order Processing Number of Electronic Orders $ 300,000 12,000...

Hospital Copy Office A hospital's copy office receives orders from managers for articles and other materials...

Hospital Copy Office A hospital's copy office receives orders from managers for articles and other materials to be copied for in-house seminars. When the copy office receives an order, an employee reviews the order and sorts it into two groups: one of materials with copyrights and another of materials without copyrights. Two employees then look in the copy office's storeroom to see if any copyright materials remain from a previous seminar in on-hand inventory; what is not already in storage...

Angela Martínez is in charge of maintaining hospital supplies at a Hospital in the Metropolitan Area....

Angela Martínez is in charge of maintaining hospital supplies at a Hospital in the Metropolitan Area. During the past year, the mean lead lime demand for bandage BX-5 was 60. Furthermore, the standard deviation for BX-5 was 7. Angela would like to maintain a 90% service level. Moreover, Angela knows that the carrying cost of BX-5 is 50 cents per unit per year. Compute the carrying costs associated with a 90%, a 95%, and a 98% service level. What is...

On May I. Sam Company sold $5,000 of inventory to Bob Company. The sale was made...

On May I. Sam Company sold $5,000 of inventory to Bob Company. The sale was made on account and Sam granted Bob credit terms of 2/10. n/30. The inventory cost Sam Company $3,000. On May 3, Bob returned $1,000 of the inventory to Sam. (The inventory returned by Bob cost Sam $600.) On May 9, Bob paid Sam in full for the amount due. 1. What journal entry will Sam record on May 3 if the perpetual inventory system is...

Fargo Memorial Hospital has annual net patient service revenues of $14.4 million. The hospital's patient accounts...

Fargo Memorial Hospital has annual net patient service revenues of $14.4 million. The hospital's patient accounts manager estimates that 10 percent of third party payers pay on Day 30, 60 percent pay on Day 60, and 30 percent pay on Day 90. a. What is Fargo's average collection period? (Assume 360 days per year throughout this problem.) b. What is the firm's current receivables balance? c. What would be the firm's new receivables balance if a newly proposed electronic claims...

Sharifi Hospital bases its budgets on patient-visits. The hospital's static budget for October appears below: Budgeted...

Sharifi Hospital bases its budgets on patient-visits. The hospital's static budget for October appears below: Budgeted number of patient-visits 7,700 Budgeted variable overhead costs: Supplies (@$4.90 per patient-visit) $ 37,730 Laundry (@$7.90 per patient-visit) 60,830 Total variable overhead cost 98,560 Budgeted fixed overhead costs: Wages and salaries 52,150 Occupancy costs 85,350 Total fixed overhead cost 137,500 Total budgeted overhead cost $ 236,060 The total overhead cost at an activity level of 8,400 patient-visits per month should be: _ - _...

Juskstock supplies was founded by Bob Juskstock in the early days of the oil boom in...

Juskstock supplies was founded by Bob Juskstock in the early days of the oil boom in Newfoundland to supply clothing to offshore drilling rigs and supply boats. He quickly grew the business to selling safety clothing and safety equipment and hired his cousin to manage sales and the final delivery step to customers. Bob is a hands on owner / manager and is involved in all the daily operational decisions. Bob oversees the identification of new products, inventory management and...

Sam is a new nurse working the day shift on a busy medical-surgical unit. He asks...

Sam is a new nurse working the day shift on a busy medical-surgical unit. He asks his aide to walk the patient in Room 244 while he admits another patient. The patient in Room 244 is a postangioplasty, and it would be the first time he has ambulated since the procedure. Sam tells his aide to walk the patient only to the nurse's station and back. He also says that if the patient's heart rate rises more than 20 beats/min...

Bob, Joe, Sam, and Cassie operate an equal partnership. Joe contributed a building (basis of $75,000...

Bob, Joe, Sam, and Cassie operate an equal partnership. Joe contributed a building (basis of $75,000 and FMV $100,000) at the time of contribution and has held it as a capital asset prior to the contribution. The building was depreciated by the partnership for tax purposes using the straight-line method at a rate of $1,923 per year with a life of 39 years. After five years worth of depreciation had been allowed with respect to the building and at a...

Subjects