Millennium Liquors is a wholesaler of sparkling wines. Their most popular produc
ID: 368418 • Letter: M
Question
Millennium Liquors is a wholesaler of sparkling wines. Their most popular product is the French Bete Noire which is shipped directly from France. Weekly demand is for 40 cases. Millennium purchases each case for $110, there is a $250 fixed cost for each order (independent of the quantity ordered) and their annual holding cost is 25 percent. What order quantity minimizes Millennium's annual ordering and holding a. costs? cases If Millennium chooses to order 250 cases each time, what is the sum of their annual ordering and holding costs? b. (Round your answer to 2 decimal places.) If Millennium chooses to order 75 cases each time, what is the sum of the ordering and holding costs incurred by each case sold? c. per case If Millennium is restricted to order in multiples of 50 cases (e.g., 50, 100, 150, d. etc.) how many cases should they order to minimize their annual ordering and cases holding costs? Millennium is offered a 5.00% discount if they purchase at least 1,000 cases. annual ordering and holding costs? e. If they decide to take advantage of this discount, what is the sum of their Hints Refer s eBook & ResourcesExplanation / Answer
Annual demand D = 40 * 52 =2080 cases
case cost C = 110
Order cost S =250
Holding cost = 0.25*110 = 27.5
a)
ecomonic order quantity = sqrt(2DS/H)
= sqrt(2 * 2080*250/27.5)
= 195 units
b)
Q=250
annual ordering + annual holding
= (D/Q)*S + (Q/2)H
= (2080/250)*250 + (250/2) * 27.5
= 5517.5
c)
annual ordering + annual holding
= (D/Q)*S + (Q/2)H
= (2080/75)*250 + (75/2) * 27.5
= 7964.58
d)
we know that minimal cost occurs at EOQ which is 195
but we can ship in multiples of 50
so, the closest is 200 units
hence 200 cases should be ordered to minimizie their annual ordering and holding costs
e)
Q=100
annual ordering + annual holding
= (D/Q)*S + (Q/2)H
= (2080/1000)*250 + (1000/2) * (110 * 0.95 * 0.25)
= 26645