Problem 13-3 A large bakery buys flour in 25-pound bags. The bakery uses an average of...
Problem 13-3
A large bakery buys flour in 25-pound bags. The bakery uses an
average of 1,215 bags a year. Preparing an order and receiving a
shipment of flour involves a cost of $10 per order. Annual carrying
costs are $75 per bag.
a. Determine the economic order quantity.
(Round your final answer to the nearest whole
number.)
Economic order quantity
bags
b. What is the average number of bags on hand?
(Round your final answer to the nearest whole
number.)
Average number of bags
c. How many orders per year will there be?
(Round your final answer to the nearest whole
number.)
Number of orders per year
d. Compute the total cost of ordering and
carrying flour. (Round your final answer to the nearest
whole number. Omit the "$" sign in your response.)
Total cost
$
e. If annual holding costs were to increase by
$9 per bag, how much would that affect the minimum total annual
cost? (Round your intermediate calculations to 2 decimal
places and final answer to 2 decimal places. Omit the "$" sign in
your response.)
Increase by $
Homework Answers
Given: Annual Usage = D = 1215 bags
Ordering cost = S = $10 per order
Annual carrying costs = H = $75 per bag
a. Economic order quantity = EOQ = 
= 
= 18 bags
b. The average number of bags on hand = EOQ / 2 = 18 / 2 = 9 bags
c. Orders per year = Annual Usage / EOQ = 1215 / 18 = 67.5 = 68 bags
d. Total cost of ordering and carrying flour = Ordering cost + Carrying cost = Orders per year * Ordering cost per order + Average bags on hand * Carrying cost per bag = 68 * 10 + 9 * 75 = $1355
e. Annual holding costs were to increase by $9 per bag
Hence, new holding cost = 75 + 9 = $84 per bag
New EOQ =
= 
= 17 bags
The average number of bags on hand = EOQ / 2 = 17 / 2 = 8.5 bags
Orders per year = Annual Usage / EOQ = 1215 / 17 = 71.4705 bags
Total cost of ordering and carrying flour = Ordering cost + Carrying cost = Orders per year * Ordering cost per order + Average bags on hand * Carrying cost per bag = 71.4705 * 10 + 8.5 * 84 = $1428.71
Increase in Minimum total annual cost = 1428.71 - 1355 = $73.71
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Problem 13-3
A large bakery buys flour in 25-pound bags. The bakery uses an
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