Question

M.84 An outdoor equipment manufacturer sells a rugged water bottle to complement its product line. They sell this item to a variety of sporting goods stores and other retailers. The manufacturer offers quantity discounts per the following discount schedule:

Option Plan	Quantity	Price
A	1 - 2,199	$6.00
B	2,200 - 4,399	$5.70
C	4,400+	$5.15

A large big-box retailer expects to sell 5,700 units this year. This retailer estimates that it incurs an internal administrative cost of $240 each time it places an order with the manufacturer. Holding cost for the retailer is $45 per case per year. (There are 52 units or water bottles per case.)

Based on this information, and not taking into account any quantity discount offers, what is the calculated EOQ (in units)? (Display your answer to the nearest whole number.)

Based on this information, sort each quantity discount plan from left to right by dragging the MOST preferred option plan to the left, and the LEAST preferred option plan to the right:

For the MOST preferred option, what will be the annual material cost? (Display your answer to the nearest whole number.)

For the MOST preferred option, what will be the annual ordering cost? (Display your answer to the nearest whole number.)

For the MOST preferred option, what will be the average inventory? (Display your answer to the nearest whole number.)

For the MOST preferred option, what will be the total annual inventory cost? (Display your answer to the nearest whole number.)

Answer 1

1) EOQ= SQRT(2DS/H)

where D= Demand in units= 5700

S= Order cost= $240

H= Holding cost= 45/52= .865

EOQ= SQRT (2* 5700*240/ .865)

EOQ= SQRT (2736000/.865)

EOQ= SQRT (3163005.78)

EOQ= 1778.48 units

Option Plan A should be selected

2) Annual material cost= 5700* $6= $34200

3) Annual ordering cost= 5700/1778.48 * $240= $769.196

4) Average inventory= 1778.48/2= 889.24

5) Total annual inventory cost= ordering cost+ Holding cost= 769.196 + 889.24* .865 + 34200= 35738.38