Problem 13-3 A large bakery buys flour in 25-pound bags. The bakery uses an aver
ID: 449416 • Letter: P
Question
Problem 13-3
A large bakery buys flour in 25-pound bags. The bakery uses an average of 4,700 bags a year. Preparing an order and receiving a shipment of flour involves a cost of $10 per order. Annual carrying costs are $75 per bag.
Determine the economic order quantity. (Do not round intermediate calculations. Round your final answer to the nearest whole number.)
What is the average number of bags on hand?(Round your answer to the nearest whole number.)
How many orders per year will there be? (Round your final answer to the nearest whole number.)
Compute the total cost of ordering and carrying flour. (Round your answer to 2 decimal places. Omit the "$" sign in your response.)
If holding costs were to increase by $9 per year, how much would that affect the minimum total annual cost? (Round intermediate order qty to nearest whole number and round your answer to 2 decimal places. Omit the "$" sign in your response.)
A large bakery buys flour in 25-pound bags. The bakery uses an average of 4,700 bags a year. Preparing an order and receiving a shipment of flour involves a cost of $10 per order. Annual carrying costs are $75 per bag.
Explanation / Answer
Annual Demand = 4700 units
Ordering Cost = $ 10
Holding Cost = $ 75
a)
Optimal Order Quantity = SQRT((2 * Annual Demand * Ordering cost) / (Holding Cost )
Optimal Order Quantity = SQRT((2 * 4700 * 10) / (75) = 35.40 = 35 units
b)
Average number of bags in hand = EOQ / 2 = 35.40 / 2 = 17.7 = 18
c)
Number of Order = Annual Demand / Optimal order Quantity = 4700 / 35.40 = 132.77
d)
Annual Holding Cost = (Optimal order Quantity / 2) * holding cost
= (35.40 / 2) * 75 = 1327.5
Annual ordering Cost = Number of order * ordering Cost = (4700 / 35.40) * 10 = 1327.68
Total Cost = $ 2655.18
e)
Annual Demand = 4700 units
Ordering Cost = $ 10
Holding Cost = $ 75 + $ 9 = $ 84
Optimal Order Quantity = SQRT((2 * Annual Demand * Ordering cost) / (Holding Cost )
Optimal Order Quantity = SQRT((2 * 4700 * 10) / (84) = 33.45
Annual Holding Cost = (Optimal order Quantity / 2) * holding cost * price
= (33.45 / 2) * 84 = 1404.99 = 1405
Annual ordering Cost = Number of order * ordering Cost = (4700 / 33.45) * 10 = 1405.08
Total Cost = $ 2810
Increase by = $2810 - $2655 = $155