Question
In: Operations Management
A local manufacturer uses 2,000 electronic switches boxes a year. Carrying costs are 23% of the...
A local manufacturer uses 2,000 electronic switches boxes a year. Carrying costs are 23% of the cost of the switch per year, and ordering costs are $15 per order. The following price schedule applies. What is the optimal order quantity? Show all total costs calculations and explain your answer.
Number of Switches Price per Switch
0 - 99 $17.50
100 - 999 $17.00
1000 or more $16.50
Solutions
Expert Solution
DEMAND = 2000
ORDERING COST = 15
HOLDING COST % = 23 %
EOQ = SQRT(2 * D * S / H), WHERE D = DEMAND, S = ORDERING COST, H = HOLDING COST
ANNUAL HOLDING COST = (Q* / 2) * H
ANNUAL ORDERING COST = (DEMAND / Q*) * S
ANNUAL PURCHASE COST = DEMAND * PER UNIT COST IN PARTCIULAR PRICE BRACKET
TCI = AHC + AOC + APC
OPTIMAL ORDER QUANTITY = 124
TOTAL COST FOR OPTIMAL QUANTITY = 34484
|
# |
MINIMUM QUANTITY |
MAXIMUM QUANTITY |
UNIT COST |
ADJUSTED HOLDING COST |
Q |
Q* |
AHC |
AOC |
APC |
TCI |
|
1 |
1 |
99 |
17.5 |
4.025 |
122 |
99 |
(99 / 2) * 4.025 = 199.24 |
2000 / 99 * 15 = 303.03 |
2000 * 17.5 = 35000 |
199.24 + 303.03 + 35000 = 35502 |
|
2 |
100 |
999 |
17 |
3.91 |
124 |
124 |
(124 / 2) * 3.91 = 242.42 |
2000 / 124 * 15 = 241.94 |
2000 * 17 = 34000 |
242.42 + 241.94 + 34000 = 34484 |
|
3 |
1000 |
OR MORE |
16.5 |
3.795 |
126 |
1000 |
(1000 / 2) * 3.795 = 1897.5 |
2000 / 1000 * 15 = 30 |
2000 * 16.5 = 33000 |
1897.5 + 30 + 33000 = 34928 |
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keosha answered 1 year agoRelated Solutions
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