Question

Chris Sandvig Irrigation, Inc., has summarized the price list from four potential suppliers of an underground control valve. See the table below. Annual usage is 700 valves; order cost is $7 per order; and annual inventory holding costs are $7.55 per unit. Vendor A Quantity Price 1-9 $35.00 10-14 34.75 15-49 33.55 50-99 32.35 100-299 31.15 300+ 30.75 Vendor B Quantity Price 1-14 $34.75 15-49 34.00 50-99 32.80 100-299 31.60 300+ 30.50 Vendor C Quantity Price 1-24 $34.50 25-74 33.75 75-199 32.50 200+ 31.10 Vend Quantity 1-74 75-199 200+ Which vendor should be selected and what order quantity is best if Sandvig Irrigation wants to minimize total cost? units at a time from (enter your response as a Chris Sandvig Irrigation should order whole number).

Answer 1

Here, economic order quantity=square root of ((2*Annual demand*Order cost)/Holding cost)

Economic order quantity= square root of ((2*700*7)/7.55)

Economic order quantity =36

Based on the economic order quantity, we will choose such vendor, who is offering that unit at lowest price,

Out of three vendor data, we could see Vendor A is offering each unit at the price of 33.55, here, it is lowest price; hence, we will consider Vendor A.