Question

​Dave's Sporting Goods sells Mountain Mouse​ freeze-dried meals.​ Dave's uses a continuous review system to manage meal inventories. Suppose Mountain Mouse offers the following volume discounts to its​ customers:

1-600 meals: ​$9.50 per meal

601 or more​ meals: $8.50 per meal

Annual demand is 1,600 ​meals, and the cost to place an order is ​$22 Suppose the holding cost is ​$4.25 per meal per year. How many meals should​ Dave's order at a​time?

​Dave's Sporting Goods should order meals at a time to take advantage of the lower cost per unit.

​(Enter your response rounded to the nearest whole number)

Answer 1

Annual demand, D	1600		Formulas used
Order cost, S	$22
Order size	1-600	601 or more
Cost, C	$9.5	$8.50	Given
Holding cost	$4.25	$4.25	Given
EOQ = sqrt(2DS/H)	128.70	128.70	Sqrt (2*1600*22/4.25)
Considered EOQ	129	601	(As per order size)
	in Range, Rounded to 129 units	EOQ Out of range, hence considered minimum 601 for discount
Order size	1-600	601 or more
Product cost = D*Cost (=C)	$15,200.0	$13,600.0	9.5 * 1600 vs. 8.5 * 1600
Holding cost = (EOQ/2) * Holding cost	$274.13	$1,277.13	(129/2)*4.25 vs (601/2) * 4.25
Ordering cost = (D/EOQ) * S	$272.87	$58.57	(1600/129)*22 vs (1600/601)*22
Total cost (Rounded to nearesst whole number)	$15,747	$14,936
Dave should order 601 units for lowest total cost of $14936.