Problem 13-5 Garden Variety Flower Shop uses 590 clay pots a month. The pots are
ID: 2656779 • Letter: P
Question
Problem 13-5 Garden Variety Flower Shop uses 590 clay pots a month. The pots are purchased at $2.80 each. Annual carrying costs per pot are estimated to be 20 percent of cost, and ordering costs are $15 per order. The manager has been using an order size of 1,750 flower pots. a. What additional annual cost is the shop incurring by staying with this order size? (Round your optimal order quantity to the nearest whole number. Round all other intermediate calculations and your final answer to 2 decimal places. Omit the "$" sign in your response.) Additional annual cost b. Other than cost savings, what benefit would using the optimal order quantity yield (relative to the order the rounded order quantity from Part a. Round your final answer to the size of 1,750)? (Use nearest whole percent. Omit the "%.. sign in your response.) About % of the storage space would be needed References eBook & Resources Worksheet Difficulty 2 Medium Problem 13-5Explanation / Answer
We have to calculate Economic Ordering Quantity to know the extra annual cost Garden Shop is incurring by staying with order size. Economic Ordering Quantity = SqRt(2*annual requirement * ordering cost / carrying cost) So, EOQ = SqRt(2* 590*12 *$15 / $2.80*20%) = SqRt(212400 / 0.56) = 616 pots Annual cost at EOQ = Ordering cost + Carrying cost = (7080/616*$15) + (616*$2.80)*20% = 180 + 345 = $525 Annual cost at Order size = (7080/1750 * $15) + (1750*$2.80*0.2) = $60 + $980 = $1040 a) Additional annual cost incurred = $ 525 - $1040 = $515 b) About (616 / 1750) = 35.20% of the storage space would be needed at EOQ .