Cesar Rego Computers, a British Columbia chain of computer hardware and software retail outlets, supplies both educational and commercial customers with memory and storage devices. It currently faces the following ordering decision relating to purchases of high-density disks:
D = 36 000 disks
S = $25
H = $0.45
Purchase price = $0.85
Discount price = $0.82
Quantity needed to qualify for the discount = 6000 disks Should the discount be taken
As per the given question Annual Demand (D)=36000 disks
cost per order(S)=$25
Holding Cost per disk (H)=$0.45
Economic Order Quantity= √2DS/H
=√2*36000*25/0.45
=√180000/0.45
=√4000000
=2000
EOQ minimise the inventory cost
We need to compare the inventory cost at various levals in case of discount
so we have to caluculate inventory cost for 2000 and 6000 disks
EOQ after applying discount =√2*36000*25/0.82+0.45
=√180000/1.27
=√1417323
=1190.51
=1190 disks
| Order Quantity | 1190 disks | 2000 Disks | 6000 Disks |
| No of orders (Annual demand/Order Quantity) | 36000/1190 =30.25 | 36000/2000=18 | 36000/6000=6 |
| Ordering cost (No of orders*$25) | 30.25*$25=$756.25 | 18*$25=$450 | 6*25= $150 |
| Holding Cost ($0.45*Average Inventory) | $0.45*1190/2 = $267.75 | $0.45*2000/2=$450 | $0.45*6000/2=$1350 |
| Cost of Purchase (Annual demand*Discount Price) | 36000*$0.82 = $29520 | 36000*$0.82 = $29520 | 36000*0.82= $29520 |
| Total Inventory Cost | 30544 | 30420 | 31020 |
Based on the above analysis optimum order leval is 2000 disks
Cesar Rego Computers, a British Columbia chain of computer hardware and software retail outlets, supplies both...