Millennium Liquors is a wholesaler of sparkling wines. Their most popular produc
ID: 385314 • 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 costs? a. 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, 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
It is assumed that there are 52 weeks in the year.
A.
Annual demand = 52*40 = 2080 cases
EOQ = (2*annual demand*ordering cost/holding cost)^.5
EOQ = (2*2080*250/(.25*110))^.5
EOQ = 194.47 or 194 cases
So, at 194 cases, the annual ordering and holding cost will be minimum.
B.
If 250 cases are ordered each time.
Annual ordering and holding cost = (annual demand/250)*ordering cost + (ordering quantity/2)*holding cost per unit per year
Annual ordering and holding cost = ((2080)/250)*250 + (250/2)*(.25*110)
Annual ordering and holding cost = $5517.5
C.
If 75 cases are ordered each time.
Annual ordering and holding cost = (annual demand/75)*ordering cost + (ordering quantity/2)*holding cost per unit per year
Annual ordering and holding cost = ((2080)/75)*250 + (75/2)*(.25*110)
Annual ordering and holding cost = $7964.58
Annual ordering and holding cost per case = Annual ordering and holding cost/annual demand
Annual ordering and holding cost per case = 7964.58/2080 = $3.83 per case
D.
EOQ is 194 cases (as per the calculations in part A).
Hence, either 200 cases or 150 cases will be ordered.
At 200 cases,
Annual ordering and holding cost = ((2080)/200)*250 + (200/2)*(.25*110) = $5350
At 150 cases,
Annual ordering and holding cost = ((2080)/150)*250 + (150/2)*(.25*110)
Annual ordering and holding cost = $5529.17
Since the Annual ordering and holding cost is lowest at the ordering quantity of 200 cases, then 200 cases should be ordered.
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