Question

Credit You Can St x Top Recom X View Your X Thanks! Related Se X The Fastest X TEST III-20X + mewconnect.mheducation.com/flow/connect.html Saved Help Save & Exit Garden Variety Flower Shop uses 590 clay pots a month. The pots are purchased at $2.80 each. Annual carrying costs per pot are estimated to be 20 percent of cost, and ordering costs are $15 per order. The manager has been using an order size of 1,750 flower pots. a.What additional annual cost is the shop incurring by staying with this order size? (Round your optimal order quantity to the nearest whole number. Round all other intermediate calculations and your final answer to 2 decimal places. Omit the "$" 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 1,750)? (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 needed. 1 cf 34 Next >

Answer 1

Monthly Demand = 590 pots

Annual Demand D = 590*12 = 7080 pots

Ordering Cost S = 15 per order

Holding Cost H = 2.80*20% = 0.56

EOQ = (2DS/H)^(1/2)

EOQ = (2*7080*15/0.56)^(1/2)

EOQ = 615.86 = 616 pots

Total Cost = (EOQ/2)*H + (D/EOQ)*S

Total Cost = (616/2)*0.56 + (7080/616)*15

Total Cost = 344.88

With Order Quantity 1750 -

Total Cost = (1750/2)*0.56 + (7080/1750)*15

Total Cost = 550.69

Additional Cost occured due to order size 1750 = 550.69 - 344.88 = 250.81

b)

Saving in space requirement = EOQ/Order Size

Saving in Space requirement = 616/1750

Saving in Space requirement = 0.352

Saving in Space requirement = 35%