Concept explainers
To determine: Whether the quantity discount must be taken or not.
Introduction:
Quantity discount model:
Quantity discount model is a scenario where manufacturing companies receive price discount for ordering large quantities. The firm will estimate if the discount quantity is profitable for the firm and make the decision.
Economic order quantity (EOQ):
EOQ is the quantity of units a company must add to its inventory so as to minimize the total inventory costs. It will determine the ideal order quantity which will decrease the inventory management costs.
Annual holding cost:
Annual holding cost is the cost involved in holding the excess inventory present within a firm. The excess inventory will be carried on for the next year and used for production.
Annual ordering cost:
Annual ordering cost is the cost involved in making a purchase order and the following up of that order. It will account for the labor involved and other associated costs.
Purchase cost:
Purchase cost is the cost incurred to purchase the require components to satisfy the demand of the firm. The cost will vary according to the demand.
Total cost:
Total cost is the overall cost taking into estimation of the holding, ordering and the purchase cost of the materials.
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Chapter 12 Solutions
EP PRIN.OF OPERATIONS MGMT.-MYOMLAB
- Meena Distributors has an annual demand for an airport metal detector of 1,400 units. The cost of a typical detector to Meena is $400. Carrying cost is estimated to be 20% of theunit cost, and the ordering cost is $25 per order. If Purushottama Meena, the owner, orders in quantities of 300 or more, he can get a 5% discount on the cost of the detectors. Should Meena take the quantity discount?arrow_forwardOllah's Organic Pet Shop sells bags of cedar chips for pet bedding or snacking (buyers choice). The supplier has offered the following terms: Order 1-100 bags, and the price is $6.00 a bag. Order 101 or more and the price is $4.50 a bag. Annual demand is 630, fixed ordering costs are $9 per order, and the per bag holding cost is estimated to be around $2 per year. What order quantity should Ollah order, based on the volume discount? Is this different from the EOQ? if so how could this be? please show calculations.arrow_forwardWang Distributors has an annual demand for anairport metal detector of 1,400 units. The cost of a typicaldetector to Wang is $400. Carrying cost is estimated to be 20%of the unit cost, and the ordering cost is $25 per order. If PingWang, the owner, orders in quantities of 300 or more, he canget a 5% discount on the cost of the detectors. Should Wangtake the quantity discount?arrow_forward
- Ollah's Organic Pet Shop sells bags of cedar chips for pet bedding or snacking (buyers choice). The supplier has offered the following terms: Order 1-100 bags, and the price is $6.00 a bag. Order 101 or more and the price is $4.50 a bag. Annual demand is 630, fixed ordering costs are $9 per order, and the per bag holding cost is estimated to be around $2 per year. What is the economic order quantity for the bags? please show calculationsarrow_forwardDaily demand for product sample kits is normally distributed with a mean of 35 units and a standard deviation of 4. Supply is virtually certain with a lead time of 9 days. The cost of placing an order is $20, and annual carrying costs for one kit is 25 percent. The price of one kit is $12.50. Assume a year has 365 days.If a 99% service level is desired, what is average inventory on hand? If demand had no variation, what would the reorder point be?arrow_forward12.27 Chris Sandvig Irrigation, Inc., has summarized the price list from four potential suppliers of an underground control valve. See the accompanying table. Annual usage is 2,400 valves; order cost is $10 per order; and annual inventory holding costs are $3.33 per unit. Which vendor should be selected and what order quantity is best if Sandvig Irrigation wants to minimize total cost? PX VENDOR A QUANTITY 1-49 50-74 75-149 150-299 300-499 500+ VENDOR C QUANTITY 1-99 100-199 200-399 400+ PRICE $35.00 34.75 33.55 32.35 31.15 30.75 PRICE $34.50 33.75 32.50 31.10 VENDOR B QUANTITY 1-74 75-149 150-299 300-499 500+ PRICE $34.75 34.00 32.80 31.60 30.50 VENDOR D QUANTITY 1-199 200-399 400+ PRICE $34.25 33.00 31.00arrow_forward
- Fisk Corporation is trying to improve its inventory control system and has installed an online system at its retail stores. Fisk anticipates sales of 58,800 units per year, an ordering cost of $4 per order, and carrying costs of $1.50 per unit. In the second year, Fisk Corporation finds that it can reduce ordering costs to $1 per order, but carrying costs will stay the same at $1.50 per unit. a-1. What is the economic ordering quantity for the second year? Economic ordering quantity (EOQ) a-2. How many orders will be placed during the second year? Number of orders a-3. What will the average inventory be for the second year? Average inventory Total costs units units a-4. What is the total cost of ordering and carrying inventory for second year? LAarrow_forwardA company is targeting a cycle service level of 25%. What should their reorder point be if they have an average weekly demand of 100, a weekly demand standard deviation of 20, and a lead time of 5 weeks?arrow_forwardMaroons Medical Supplies, Inc. must order masks from its supplier in lots of 1 dozen boxes. Given the information provided below, complete the following table: Annual demand 26,000 dozen Cost per order placed P30 Carrying cost 20% Price per dozen P7.80 Order Size (Dozen) 250 500 1,000 2,000 13,000 26,000 Number of orders Average inventory Carrying cost Order cost Total cost 1. What is the EOQ? Thank you so much!arrow_forward
- Wang Distributors has an annual demand for an airport metal detector of 1,421 units. The regular cost of a detector for Wang is $363. The storage cost is estimated to be 20% of the unit cost, and the cost of placing each order is $25. If Mr. Wang, the owner, orders quantities of 300 or more, the cost of one detector will be $365. Wang Distributors has a year of 250 business days. When a new order of detectors is made, the supplier takes 3 days to deliver it. Show your work. 1. What inventory management model should we use to solve this problem? Model Economic Quantity to Produce Model Economic Quantity to Order Model to handle dependent demand Model for discount purchases 2. What is the optimal quantity of detectors that should be made in each order if purchased at full price? Response 3. What is the optimal quantity of detectors that should be made in each order if purchased at a discount price? Response 4. After validating the quantity of detectors that should be made in each order…arrow_forwardHi Tech Corporation (HTC) expects to order 295,000 memory chips for inventory during the coming year, and it will use this inventory at a constant rate. Fixed ordering costs are $300 per order; the purchase price per chip is $32; and the firm’s inventory carrying costs is equal to 18 percent of the purchase price. EOQ=2309.75. If HTC is able to negotiate a reduction in the fixed ordering costs to $250.00 per order, but HTC decides to carry a safety stock of 28 days of memory chip sales. With the reduced fixed ordering cost and the increased average inventory due to the safety stock carried, what is the additional total inventory costs due to the decision to balance out uncertainty by carrying the specified safety stock?arrow_forwardA company has been approached by their supplier who would be willing to offer a discount of 5% on orders over 500 units. Information regarding current inventory costs is as follows: Holding cost per unit per annum 10% of purchase price Ordering costs = $2 per order Annual demand = 15,000 units Purchase price 200 units Identify which option is better for the company. $15 per unit Current EOQ quantity = = =arrow_forward
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