Question

Sarah’s Organic Soap Company makes organic liquid soap. One of the raw materials for her soaps...

Sarah’s Organic Soap Company makes organic liquid soap. One of the raw materials for her soaps is organic palm oil. She needs 500 kgs of palm oil per day on average. The supplier charges a $55 delivery fee per order (which is independent of the order size) and $5.5 per kg. Sarah’s annual holding cost is 15%. Assume she operates and sells 5 days per week, 52 weeks per year.

a.If Sarah wants to minimize her annual ordering and inventory holding costs, how much palm oil should she purchase with each order (in kgs)?kgs(Round to nearest integer.)

b.If Sarah orders 4250 kgs with each order, what would be the annual sum of ordering and holding costs? (Round your answer to 3 decimal places.)

c.If Sarah orders 8100 kgs with each order, what would be sum of ordering and holding costs per kg sold? per kg

d.Sarah’s supplier is willing to sell her palm oil at a 5% discount if she purchases 15,000 kgs at a time. If she were to purchase 15,000 kgs per order what would be her annual sum of ordering and holding costs?

Homework Answers

Answer #1

a) to minimize holding and ordering cost we need to find the optimal order quantity EOQ.

EOQ = (2*D*O/h)

D = annual demand = daily demand*days*weeks = 500*5*52 = 130000

O = order cost = 55

h = holding cost = 15% of per kg cost = 15%*5.5 = 0.825

EOQ = (2*130000*55/0.825) = 17333333.3 = 4163.33 kg = 4163 kg in each order

b) order quantity (Q) = 4250

total cost = ordering + holding cost

= D*O/Q + Q*h/2

= 130000*55/4250 + 4250*0.825/2

= 1682.353 + 1753.125

= 3435.478

c) Q = 8100

total cost = ordering + holding cost

= D*O/Q + Q*h/2

= 130000*55/8100 + 8100*0.825/2

= 882.716 + 3341.25

= 4223.966

d) Q = 15000

total cost = ordering + holding cost

= D*O/Q + Q*h/2

= 130000*55/15000 + 15000*0.825/2

= 476.667 + 6187.5

= 6664.167

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Bruno Fruscalzo decided to start a small production facility in Sydney to sell gelato to the...
Bruno Fruscalzo decided to start a small production facility in Sydney to sell gelato to the local restaurants. His local milk supplier charges $0.5 per kg of milk plus a $25 delivery fee (that is independent of the amount ordered). Bruno’s holding cost is $0.02 per kg per month. He needs 9750 kgs of milk per month. a.Suppose Bruno orders 9250 kgs each time. What is his average inventory (kgs)? b.Suppose Bruno orders 7000 kgs each time. How many orders...
Solve in ExcelQM Barbara Bright is the purchasing agent for West Valve Company. West Valve sells...
Solve in ExcelQM Barbara Bright is the purchasing agent for West Valve Company. West Valve sells industrial valves and fluid control devices. One of the most popular valves is the Western, which has an annual demand of 4,000 units. The cost of each valve is $90, and the inventory carrying cost is estimated to be 10% of the cost of each valve. Barbara has made a study of the costs involved in placing an order for any of the valves...
Assume you are the management accountant for the Foleo Group. Tracey Chen, the CFO, has called...
Assume you are the management accountant for the Foleo Group. Tracey Chen, the CFO, has called you into a meeting, to discuss the performance of the Warehouse Manager of the Foleo Fones business unit in managing his inventory stocks. After his last meeting with the Production Manager, Allan Raymond, the Business Unit GM, has supplied Tracey with below data relating to the inventory management practices for the current year. Tracey asks you analyse this data and before her Board meeting...
Pallets of Cake Mix Demanded Probability Cumulative Probability Fewer than 2 0.10 0.10 2 0.30 0.40...
Pallets of Cake Mix Demanded Probability Cumulative Probability Fewer than 2 0.10 0.10 2 0.30 0.40 3 0.55 0.95 4 0.04 0.99 5 0.007 0.997 6 0.003 1.00 Sum: 1 Just Baked grew from one retail store in 2009 to thirteen stores in early 2013. Demand for cupcakes exhibits patterns based on seasons, store location, day of the week, and time of day. The "freshness promise" implicit in the name Just Baked has to be supported by the daily baking...