Question

Homework: Homework 8 (Module 12) Save Score: 0 of 3 pts 13 of 21 (21 complete) HW Score: 86.83%, 39.08 of 45 pt Problem 12.22 Question Help Bell Computers purchases integrated chips at $350 per chip. The holding cost is $34 per unit per year, the ordering cost is $119 per order, and sales are steady at 400 per- month. The company's supplier, Rich Blue Chip Manufacturing Inc., decides to offer price concessions in order to attract larger orders. The price structure is shown below. Rich Blue Chip's Price Structure Quantity Purchased Price/Unit 1.99 units $350 100-199 units $325 200 or more units $300 a) What is the optimal order quantity and the minimum annual cost for Bell Computers to order, purchase, and hold these integrated chips? The optimal order quantity after the change in pricina structure is units (enter our response as a whole numbers Enter your answer in the edit fields and then click Check Answer Check Answer Clear All 1 Dart remaining JOS PU 1992000 O Type here to search DOLL Fo 96 $ 4 8 7 8 5 3 2

Answer 1

Answer: 200

Explanation:

Annual Demand (D) = Monthly Demand * 12 = 400*12 = 4800 units

Cost per Order (S) = $119

Annual Holding Cost per Unit (H) = $34

Economic Order Qty (EOQ) = SQRT(2*S*D/H) = SQRT(2*119*4800/34) = 183.03 ~ 183 units

Option 1: 1 - 99 Units

EOQ = 183 > Upper limit of the range

So to order 1-99 qty is not an optimum solution

Option 2: 100 - 199 units

EOQ (Q) = 183 units (within the given range)

Purchasing Cost (p) = $325

Annual Purchasing Cost = p*D = 325*4800 = $1560000

Annual Holding Cost = (Q/2)*H = (183/2)*34 = $3111

Annual Ordering Cost = (D/Q)*S = (4800/183)*119 =$ 3121.31

Total Cost = Annual Purchasing Cost + Annual Holding Cost + Annual Ordering Cost = $1566232.31

Option 2: >=200 units

EOQ = 183 units < 200

Feasible EOQ (Q) = 200 units

Purchasing Cost (p) = $300

Annual Purchasing Cost = p*D = 300*4800 = $1440000

Annual Holding Cost = (Q/2)*H = (200/2)*34 = $3400

Annual Ordering Cost = (D/Q)*S = (4800/200)*119 =$ 2856

Total Cost = Annual Purchasing Cost + Annual Holding Cost + Annual Ordering Cost = $1446256

Total Cost for Q=200 is the lowest so Optimal Order Qty = 200 units