Millennium Liquors is a wholesaler of sparkling wines. Their most popular produc
ID: 383928 • 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. Milennium purchases each case for $110, there is a $275 fixed cost for each order (independent of the quantity ordered) and their annual holding cost is 25 percent. a What order quantity minimizes Millennium's annual ordering and holding cases If Millennium chooses to order 300 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 125 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, holding costs? Millennium is offered a 5.00% discount if they purchase at least 1,000 cases. annual ordering and holding costs? d.etc.) how many cases should they order to minimize their annual ordering and cases e. If they decide to take advantage of this discount, what is the sum of theirExplanation / Answer
Weekly demand = 40 cases
Annual demand (D) = 40 x 52 = 2080 cases (Assuming 52 weeks in a year)
Ordering cost (S) = $275
Holding cost (H) = 25% of cost = 25% of $110 = $27.5
a) Economic order quantity = sqrt of (2DS /H)
= sqrt of [(2x 2080 x 275)/27.5]
= sqrt of 41600
= 203.96 or rounded to 204 cases.
So the order quantity of 204 cases will minimize the annual Ordering and Holding cost.
b) If the order quantity (Q) = 300 cases
Annual Ordering cost = (D /Q) S = (2080/300)275 = $1906.67
Annual holding cost = (Q/2)H = (300/2)27.5 = $4125
Total annual cost = Ordering cost + Holding cost
= $1906.67 + $4125
= $6031.67
C) If the order quantity (Q) = 125 cases
Annual Ordering cost = (D /Q) S = (2080/125)275 = $4576
Annual holding cost = (Q/2)H = (125/2)27.5 = $1718.75
Total annual cost = Ordering cost +Holding cost
= $4576 + $1718.75
= $6294.75
Total cost per case = Total cost / D = $6294.75/2080 = $3.03
d) The economic order quantity is 204 cases. So if Millennium is restricted to order in multiple of 50, it should order 200 cases. Because it is the nearest multiple of 50 to the EOQ.
e) If the order quantity (Q) = 1000 cases,
Cost = $110 - (5% of $110) = $110 - $5.5 = $104.5
Holding cost (H) = 25% of cost = 25% of $104.5 = $26.13
Annual Ordering cost = (D/Q) S = (2080/1000)275 = $572
Annual holding cost = (Q/2)H = (1000/2)26.13 = $13065
Total annual cost = Ordering cost +Holding cost
= $572 + $13065
= $13637