Chapter 12, Problem 22P

Question

•• 12.22 The catering manager of La Vista Hotel, Lisa Ferguson, is disturbed by the amount of silverware she is losing every week. Last Friday night, when her crew tried to set up for a banquet for 500 people, they did not have enough knives. She decides she needs to order some more silverware, but wants to take advantage of any quantity discounts her vendor will offer.

For a small order (2,000 or fewer pieces), her vendor quotes a price of $1.80y piece.

If she orders 2,001-5,000 pieces, the price drops to $1 60ypiece. 5,001–10,000 pieces brings the price to $1.40ypiece, and 10,001 and above reduces the price to $1.25.

Lisa’s order costs are $200 per order, her annual holding costs are 5%, and the annual demand is 45,000 pieces. For the best option:

1. a. What is the optimal order quantity?
2. b. What is the annual holding cost?
3. c. What is the annual ordering (setup) cost?
4. d. What are the annual costs of the silverware itself with an optimal order quantity?
5. e. What is the total annual cost, including ordering, holding, and purchasing the silverware?