Question

Rocky Mountain Tire Center sells 9000 ?go-cart tires per year. The ordering cost for each order is ?$35?, and the holding cost is 30?% of the purchase price of the tires per year. The purchase price is ?$21 per tire if fewer than 200 tires are? ordered, ?$17 per tire if 200 or? more, but fewer than 5000?, tires are? ordered, and ?$13 per tire if 5000 or more tires are ordered.

a) How many tires should Rocky Mountain order each time it places an? order? Rocky? Mountain's optimal order quantity is .... (enter your response as a whole? number).

?b) What is the total cost of this? policy? Total annual cost of ordering optimal order size=?$ ?(round your response to the nearest whole? number).

Answer 1

Annual Demand	9000
Ordering Cost	35

When Price = 21 $

Holding cost = .30*21= 6.3

EOQ = ((2*Annual Demand*Cost per order)/Holding cost)^1/2 = 100000 = 316.22 = 316 units Not feasible solution When Price = 17 $ Holding cost = .30*17= 5.1 $ EOQ = ((2*Annual Demand*Cost per order)/Holding cost)^1/2 = 351.46 = 351 units feasible solution When price = 13 $ then also not feasible. a) Hence EOQ= 351 units b) Total cost= Ordering cost + holding cost = (Annual demand/EOQ)*ordering cost + (EOQ/2)*Holding cost = 1581.88 $ = 1582 $ Annual ordering cost = (Annual demand/EOQ)*ordering cost = 897.43 = 897 $