Problem 13-5 Garden Variety Flower Shop uses 570 clay pots a month. The pots are
ID: 435583 • Letter: P
Question
Problem 13-5 Garden Variety Flower Shop uses 570 clay pots a month. The pots are purchased at $2.90 each. Annual carrying costs per pot are estimated to be 10 percent of cost, and ordering costs are $10 per order. The manager has been using an order size of 2,000 flower pots a.What additional annual cost is the shop incurring by staying with this order size? (Round your optimal order quantity to the nearest whole number. Round all other intermediate calculations and your final answer to 2 decimal places. Omit the "$" sign in your response.) Additional annual cost $ b.Other than cost savings, what benefit would using the optimal order quantity yield (relative to the order size of 2,000)? (Use the rounded order quantity from Part a. Round your final answer to the nearest whole percent. Omit the "%" sign in your response.) About % of the storage space would be neededExplanation / Answer
a)
Annual demand = 570*12 = 6840
Annual carrying cost = 10% of 2.9= $ 0.29
Ordering cost = $10
EOQ = Sqrt(2*D*S/H) = Sqrt((2*6840*10)/0.29) = 686.822 = 687(rounding off)
Cost when order quantity is EOQ = (687/2)*0.29+(6840/687)*10 = $199.178
Annual costs = (6840/2000)*10+(2000/2)*0.29 = $324.2
Additional Annual cost = 324.2 – 199.178 = $125.02
b)
Average inventory when EOQ is used = 687/2 = 342.5
Average inventory when order qty is 2000 = 2000/2 = 1000
About (342.5/1000)*100 % of the storage space would be needed
About 34.25% of the storage space would be needed