Part A is already answered however I am struggling on part B its at the bottom.

Question

Part A is already answered however I am struggling on part B its at the bottom.

Part A- A company manufacturing bicycles has a current annual demand of 1,500 bikes. In buying bike tires, they pay $14 per tire with an estimated carrying cost of 20% of the tire’s cost. Each order cost $25 to process. Orders are placed on the first of each month for an equal amount every month. Determine the current ordering cost, carrying cost and total inventory cost each year using the current order quantity. Calculate the EOQ. Determine the current ordering cost, carrying cost and total inventory cost each year using the quantity found from the EOQ calculations.

Part B- So we already know the answer to the question above if the vendor of bicycle tires is offering free ordering processing if they increase their order size. What is the MAXIMUM size order which would make this offer appealing to the bicycle manufacturer?

Explanation / Answer

Part A is correct

Part B

Total annual cost with EOQ = $ 458.66 (as calculated in part A)

The maximum order size is such that the total annual cost is at most equal to the cost of EOQ policy

With order processing cost being 0, there is only inventory carrying cost. Considering an order quantity of Q,

Total annual cost with free ordering = (Q/2)*H = (Q/2)*14*0.2 = 458.66 (equal to cost of EOQ)

Q = 458.66*2/(14*0.2) = 328

MAXIMUM order size that will make this offer appealing = 328 units

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