Problem 13-3 A large bakery buys flour In 25-pound bags. The bakery uses an aver
ID: 333957 • Letter: P
Question
Problem 13-3 A large bakery buys flour In 25-pound bags. The bakery uses an average of 1,215 bags a year. Preparing an order and receving a shipment of flour Involves a cost of $10 per order. Annual carrying costs are $75 per bag. a. Determine the economic order quantity. (Round your final answer to the nearest whole number) Economic order quantity bags b. What Is the average number of bags on hand? (Round your final answer to the nearest whole number.) Average number of bags 9 C. How many orders per year will there be? (Round your final answer to the nearest whole number.) Number of orders per year d. Compute the total cost of ordering and carrylng flour. (Round your final answer to the nearest whole number. Omit the "$" sign in 68 your response.) Total cost $ e. If holding costs were to Increase by $9 per year, how much would that affect the minlmum total annual cost? (Round your Intermedlate calculations to 2 decimal places and final answer to 2 decimal places. Omit the "S" sign in your response.) Increase byExplanation / Answer
Solution- Q below represents EOQ which is 18 bags from part a solution.
d. TC = (Q/2)*H + (D/Q)*S= (18/2)*75 + (1215/18)*10 = 1350 dollars
e. If H increase by 9, then new H would be 75 + 9= 84 dollars, then
Q would be = sqrt(2*D*S/H) = sqrt(2*1215*10/84) = 17 bags
TC = (Q/2)*H + (D/Q)*S = (17/2)*84 +(1215/17)*10 = 1428 dollars
therefore the difference is 1428-1350 dollars = 78 dollars
so increase by 78 dollars