Please find answers to first 4 questions : Answer to question a: Order quantity
ID: 373974 • Letter: P
Question
Please find answers to first 4 questions :
Answer to question a:
Order quantity = 1000 Gallons
Average inventory = 1000 /2 = 500Gallons
AVERAGE INVENTORY = 375 GALLONS
Answer to question b:
Annual demand = 250 Gallons/ week x 52 weeks = 13000 Gallons
Order Quantity = 1500 Gallons
Hence, number of orders to be placed by Joe Birra with supplier each year = 13000/1500 = 8.66
NUMBER OF ORDERS TO BE PLACED WITH SUPPLIER EACH YEAR = 8.66
Answer to question c :
Economic Order Quantity ( EOQ) model will be used to calculate optimal order quantity which minimizes total ordering cost and inventory holding cost .
Accordingly,
EOQ = Square root ( 2 x Co x D/ Ch )
Co = Ordering cost = $35
Ch = Annual unit holding cost = 35% of $1.2 = $0.42
D = Annual demand = 250 / week x 52 weeks = 13000
Therefore ,
EOQ = Square root ( 2 x 35 x 13000/0.42)
= 1471.96 ( 1472 rounded to nearest whole number)
JOE WOULD ORDER 1472 GALLONS EACH TIME FROM HIS SUPPLIER
Answer to question d :
Order quantity = 2500 Gallons
Annual ordering cost = Ordering cost x Number of orders = Ordering cost x Annual demand / Order quantity = $35 x 13000/2500 =$182
Annual inventory holding cost = Annual unit inventory holding cost x Average inventory = Ch x Order quantity/ 2 = $0.42 x 2500/2 =$525
Sum of ordering and holding cost per Gallon = $182 + $525 = $707
Hence sum of ordering and holding cost per Gallon = $707/2500 = $0.2828
SUM OF ORDERING AND HOLDING COST PER GALLON = $0.2828
AVERAGE INVENTORY = 375 GALLONS
Explanation / Answer
3.Joe Birra needs to purchase malt for his microbrewery production. His supplier charges $35 per delivery (no matter how much is delivered) and $1.20 per gallon. Joe’s annual holding cost per unit is 35 percent of the price per gallon. Joe uses 250 gallons of malt per week.
a.Suppose Joe orders 1000 gallons each time. What is his average inventory (in gal)?
b.Suppose Joe orders 1500 gallons each time. How many orders does he place with his supplier each year?
c.How many gallons should Joe order from his supplier with each order to minimize the sum of the ordering and holding costs?
d.Suppose Joe orders 2500 gallons each time he places an order with the supplier. What is the sum of the ordering and holding costs per gallon?
e.Suppose Joe orders the quantity from part (C) that minimizes the sum of the ordering and holding costs each time he places an order with the supplier. What is the annual cost of the EOQ expressed as a percentage of the annual purchase cost?
f.If Joe’s supplier only accepts orders that are an integer multiple of 1000 gallons, how much should Joe order to minimize ordering and holding costs per gallon?
g.Joe’s supplier offers a 3 percent discount if Joe is willing to purchase 8000 gallons or more. What would Joe’s total annual cost (purchasing, ordering, and holding) be if he were to take advantage of the discount?