Scribd
Upload
531 views8 pages

GG

The optimal order quantity and total annual cost for surge electric's 4000 toggle switches per year is: - Optimal order quantity is 1000 switches - This allows them to purchase switches at the lowest price of $0.80 each - The total annual cost at this order quantity is $3,480

Uploaded by

Gaurav Sharma
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
531 views8 pages

GG

The optimal order quantity and total annual cost for surge electric's 4000 toggle switches per year is: - Optimal order quantity is 1000 switches - This allows them to purchase switches at the lowest price of $0.80 each - The total annual cost at this order quantity is $3,480

Uploaded by

Gaurav Sharma
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 8

A local distributor for a national tire company expects to sell approximately 9600 steel-belted radial tires of a certain size

and tread design next year. Annual carrying cost is P16 per tire, and ordering cost is P75. The distributor operates 288 days a year. a. b. c. d. What is the EOQ? How many times per year does the store reorder? What is the length of an order cycle? What is the total annual cost if the EOQ quantity is reordered?

Solution:
D = 9,600 tires per year H = P16 per unit per year S = P75

a. b. Number of orders per year: D/EOQ = 9,600 tires/300 tires = 32 c. Length of order cycle; EOQ/D = 300 tires/9,600 tires per year = 1/32 of a year, which is 1/32 x 288 or 9 workdays d. TC = Carrying cost + Ordering cost = (EOQ/2)H + (D/EOQ)S

= (300/2)16 + (9,600/300)75 = 2,400 + 2,400 = P4,800

A toy manufacturer uses 48,000 rubber wheels per year for its popular dump truck series. The firm makes its own wheels, which it can produce at a rate of 800 per day. The toy trucks are assembled uniformly over the entire year. Carrying cost is P1 per wheel a year. Setup cost for a production run of wheels is P45. the firm operates 240 days per year. Determine the a. b. c. d. Optimal run size Minimum total annual cost for carrying and setup Cycle time for the optimal run size Run time

Solution:
D = 48,000 wheels per year S = P45 H = P1 per wheel per year p = 800 wheels per day u = 48,000 wheels per 240 days or 200 wheels per day 1.

2. TCmin = Carrying cost + Setup cost = (Imax/2)H + (D/EOQ) S Thus, you must first compute Imax: Imax = (EOQ/p)(p-u) = (2,400/800)(800-200) = 1,800 wheels TC = (1,800/2)P1 + (48,000/2,400)P45 = P900 + P900 = P1,800 Note again the equality of cost ( in this example, setup and carrying costs )at the EOQ. 3. Cycle time = EOQ/u = 2,400 wheels/ 200 wheels per day = 12 days Thus, a run of wheels will be made every 12 days. 4. Run time = EOQ/p = 2,400 wheels/800 wheels per day

=3 days Thus, each run will require 3 days to complete.

Example 1 (constant)

The maintenance department of a large hospital uses about 816 cases of liquid cleanser annually. Ordering costs are P12, carrying costs are P4 per case a year, and the new price schedule indicates that orders of less than 50 cases will cost P20 per case, 50 to 79 cases will cost P18 per case, 80 to 99 cases will cost P17 per case, and larger orders will cost P16 per case. Determine the optimal order quantity and the total cost.

Solution:
D = 816 cases per year S = P12 H = P4 per case per year
Range 1 to 49 50 to 79 80 to 99 100 or more Price P20 P18 P17 P16

1.

2. The 70 cases can be bought at P18 per case because 70 falls in the range of 50 to 79 cases. The total cost to purchase 816 cases a year, at the rate of 70 cases per order , will be TC = Carrying cost + order cost + Purchase cost = (EOQ/2) H + (D/EOQ) S + PD = (70/2) 4 + (816/70) 12 + 18(816) = P14,968 Because lower cost ranges exist, each must be checked against the minimum cost generated by 70 cases at P18 each. In order to buy at P17 per case, at least 80 cases must be purchased. The total cost at 80 cases will be TC80 = (80/2)4 + (816/80)12 + 17(816) = P14,154 To obtain a cost of P16 per case,at least 100 cases per order are required,and the total cost at that price break will be TC100 = (100/2)4 + (816/100)12 + 17(816) = P13,354 Therefore, because 100 cases per order yields the lowest total cost, 100 cases is the overall optimal order quantity.

Example 2 (percentage of purchase price)

Surge electric uses 4,000 toggle switches a year. Switches are price as follows: 1 to 499, 90 cents each; 500 to 999, 85 cents each; and 1000 or more,80 cents each. It costs approximately P30 to prepare an order and receive it, and carrying costs are 40% if purchase price per unit on an annual basis. Determine the optimal order quantity and the total annual cost.

Solution:
D = 4,000 switches per year S = P30 H = .40P
Range 1 to 499 500 to 999 1,000 or more Unit Price P0.90 P0.85 P0.80 H 0.40(0.90)=0.36 0.40(0.85)=0.34 0.40(0.80)=.32

Find the minimum point for each price, starting with the lowest price, until you locate a feasible minimum point. Minimum point0.80 =

Because an order size of 866 switches will cost P0.85 each rather than P0.80 each, 866 is not a feasible minimum point for P0.80 per switch. Next, try P0.85 per unit. Minimum point0.85 =

This is feasible: it falls in the P0.85 per switch of 500 to 999. Now compute the total cost for 840, and compare it to the total cost of the minimum quantity necessary to obtain a price of P0.80 per switch. TC = Carrying cost + Order cost + Purchase cost = (EOQ/2) H + (D/EOQ) S + PD TC840 = (840/2) 0.34 + (4,000/840)30 + 0.85(4,000) =3,686 TC1,000 = (1,000/2) 0.32 + (4,000/1,000)30 + 0.80(4,000)

= P 3,480 Thus, the minimum-cost order size is 1,000 switches.

You might also like