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

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 ago

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