i.
Annual demand of rulers = 1200
Holding cost = 0.1 % of purchase cost per month per rule = 0.1% * 12 * 1 = 0.012 RM (annual holding cost per year per ruler)
Order cost per order =15 RM
Increased demand of rulers = 2400
We will user Economic order quantity (EOQ) method to estimate optimal order quantity of rulers before and increase of demand
EOQ = square root (2 * Annual Demand * Setup cost per order/ Holding cost per unit per year)
EOQ (Before) = square root (2*1200*15/0.012) = 1732 approximately
EOQ (After) = square root (2*2400*15/0.012)= 2450 approximately
Total cost (Before) = (Order quantity/2) * Holding cost per unit per year + (Demand/ Order quantity)* Ordering cost per order
Total cost (Before) = (1732/ 2)*0.012 + (1200/1732)*15 = 10.392 + 10.393 = $20.79
Total cost (After) = (2450/ 2)*0.012 + (2400/2450)*15 = 14.7 +
14.7 = $29.4
ii
Revised Demand = 2400 rulers
Cost per unit (second supplier) =0.85 RM per unit
Holding cost (second supplier) = 0.85 *0.1%*12 = 0.0102
Order size = At least 800 units (in multiples of 100)
Since the holding cost is reduced, school can now order complete 2400 orders at one go.
Total cost in that case would be
Total cost (second supplier ) = (Order quantity/2) * Holding cost per unit per year + (Demand/ Order quantity)* Ordering cost per order
Total cost (second supplier ) = (2400/ 2)*0.0102 + (2400/2400)*15 = 12.24 + 15 = $27.24
Since total cost of second supplier ($27.24) is lower than first supplier ($29.4) hence the school management should switch to new firm.
A. Berjaya private school annually uses 1200 units of plastic rulers for its mathematics courses....