Question

1. An electronic store sells 3,000 HD TV sets every quarter of the year. Each TV set costs the store $ 270.00. The carrying cost is set at 2% of the purchase price per unit per year. Each time an order is placed it costs the store $ 120.00 The supplier charges $10 for delivery of each order. Calculate:

a. Optimal order quantity

                                b. Number of orders per year

c. The supplier is willing to give a discount of 3% on the price of each set if the manager of the store orders 3,000 sets at a time. Should the manager accept the offer?

Answer 1

Q= (2DS)/H

Q=EOQ units

D=Demand in units (typically on an annual basis)

S=Order cost (per purchase order)

H=Holding costs or carrying cost (per unit, per year)​

..

a)

Demand= 3000 every quarter, so 12000 units (3000*4)

Carrying cost = 2% of 270

= $5.4

ordering cost = $120 + $10 (delivery) = $130

Putting the values in the formula:

=(2*12000*130)/5.4

= (3,120,000/5.4)

=577,777.78

= 760 units

..

b) Number of orders per year = Demand/Order quantity

= 12000/760

=15.78

= 16 orders

..

c. The supplier is willing to give a discount of 3% on the price of each set if the manager of the store orders 3,000 sets at a time. Should the manager accept the offer?

No of orders to be placed if we order 3,000 sets at a time = 4 (12000/3000)

Cost to us after discount of 3% = (270*0.97) = $ 261.9

Carrying cost = 2% of 261.9 = $ 5.238

Total cost per = purchasing price (261.9*12000) + ordering cost (4 * 130) + carrying cost (5.234*3000) (As we have 3000 units in one time)

= 3,142,800+ 520 + 15702

= $ 3,159,022

..

Total cost if we order 760 units in one order, no of orders required = 16

(270*12000) +(16*130) + (5.4*760) (As we have 760 units in one time)

= $ 3,244,584

since it will cost us less if we order 3000 units in one time beacuse of the 3 % discount we should accept the offer.