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In: Operations Management

Ergonomics Inc. sells ergonomically designed office chairs. The company has the following information: Average demand =...

Ergonomics Inc. sells ergonomically designed office chairs. The company has the following information:

Average demand = 20 units per day

Average lead time = 30 days

Item unit cost = $50 for orders of less than 200 units

Item unit cost = $48 for orders of 200 units or more

Ordering cost = $25

Inventory carrying cost = 25%

The business year is 250 days

Assume there is no uncertainty at all about the demand or the lead time.

a. Calculate EOQ if unit cost is $50 and $48. (Note: These EOQs do not need to be feasible in their price range.)

My answers: Unit cost at $50 - 141 units

Unit cost at $48 - 144 units

b. Calculate annual ordering costs for each alternative?

My answers: Unit cost at $50 - $886.52

Unit cost at $48 - $868.06

c. Calculate annual inventory carrying costs for each alternative?

My answers: Unit cost at $50 - $881.25

Unit cost at $48 - $864.00

d. Calculate annual product costs for each alternative?

My answers: Unit cost at $50 - $250,000

Unit cost at $48 - $240,000

e. What will be the total costs for each alternative?

My answers: Unit cost at $50 - $251,908.77

Unit cost at $48 - $241,876.06

f. How many chairs should the firm order each time?

My answers is 141 chairs

g. How much the firm can save annually by using the order quantity in Part f. instead of the first EOQ shown in Part a?

My answer is $10,032.71

It's not showing my homework which answer I got wrong just that I got the whole question wrong. I am confuse to what I did wrong.

Solutions

Expert Solution

Quantity discounts are provided to unit cost if the particular quantity range is ordered. Reduction in unit cost reduces the holding cost. Since holding cost is inversely proportional to economic order quantity, so reduction in holding cost may increase the optimal order quantity or it may remain unchanged.

keosha answered 1 year ago
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