Bell Computers purchases integrated chips from a supplier. The supplier offers price concessions for larger orders.
a) With a $35 per unit holding cost, the optimal order quantity for Bell is 200 chips, with a minimum annual cost of $1,440,000.
b) With a 10% holding cost, the optimal order quantity is also 200 chips, with a minimum annual cost of $1,445,880. Ordering more than 200 chips results in the lowest total cost.
Bell Computers purchases integrated chips from a supplier. The supplier offers price concessions for larger orders.
a) With a $35 per unit holding cost, the optimal order quantity for Bell is 200 chips, with a minimum annual cost of $1,440,000.
b) With a 10% holding cost, the optimal order quantity is also 200 chips, with a minimum annual cost of $1,445,880. Ordering more than 200 chips results in the lowest total cost.
Bell Computers purchases integrated chips from a supplier. The supplier offers price concessions for larger orders.
a) With a $35 per unit holding cost, the optimal order quantity for Bell is 200 chips, with a minimum annual cost of $1,440,000.
b) With a 10% holding cost, the optimal order quantity is also 200 chips, with a minimum annual cost of $1,445,880. Ordering more than 200 chips results in the lowest total cost.
Bell Computers purchases integrated chips from a supplier. The supplier offers price concessions for larger orders.
a) With a $35 per unit holding cost, the optimal order quantity for Bell is 200 chips, with a minimum annual cost of $1,440,000.
b) With a 10% holding cost, the optimal order quantity is also 200 chips, with a minimum annual cost of $1,445,880. Ordering more than 200 chips results in the lowest total cost.
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P12.24 Bell Computers purchases integrated chips at $350 per chip.
The holding cost is $35 per unit per year, the ordering cost is $120 per order, and sales are steady, at 400 per month. The company’s supplier, Rich Blue Chip Manufacturing, Inc., decides to offer price concessions in order to attract larger orders. The price structure is shown below.
Rich Blue Chip’s Price Structure
Quantity Purchased Price/Unit 1– 99 units $350 100 – 199 units $325 200 or more units $300
a) What is the optimal order quantity and the minimum annual cost for Bell Computers to order, purchase, and hold these integrated chips? b) Bell Computers wishes to use a 10% holding cost rather than the fixed $35 holding cost in (a). What is the optimal order quantity, and what is the optimal annual cost?
Demand: 400 chips/month => D = 400 x 12 = 4800 chips/year
a) The optimal order quantity: 2 DS 2 x 4800 x 120 EOQ = √ H = √ 35 ≈ 182 chips
Assume that the ordered quantity is 90 units (belongs 1 – 99):
D Q Total annual cost include purchase cost = Q S + 2 H + PD HQ SD 35× 90 120 x 4,800 Total cost = PD + 2 + Q = 350 x 4,800 + 2 + 90 = $1,687,975
Assume that the ordered quantity is 190 units (belongs 100 – 199): D Q Total annual cost include purchase cost = Q S + 2 H + PD HQ SD 35× 190 120 x 4,800 Total cost = PD + 2 + Q = 325 x 4,800 + 2 + 190 = $1,566,356.58
Assume that the ordered quantity is 200 units (belongs 200+):
HQ SD 35× 200 120 x 4,800 Total cost = PD + 2 + Q = 300 x 4,800 + 2 + 200 = $1,446,380 The lowest cost The optimal order quantity should be 200 integrated chips or more for the lowest minimum total cost of $1,440,000.
b) I = 10% Price is $350, the Economic order quantity is 2 DS 2 × 4800 ×120 At price: $350: EOQ = √ PI = √ 350 ×10 % ≈ 182 chips
2 DS 2 × 4800 ×120 At price: $300: EOQ = √ PI = √ 300 ×10 % ≈196 chips
Bell Computers cannot purchase 182 chips at price $350 and also 196 chips at $300. So, taking the EOQ = 189 units. At 189 units: PIQ SD 325× 10 % ×189 120× 4800 Total cost = PD + 2 + Q =325 × 4,800 + 2 + 189 = $1,566,118.87 At 200 units: PIQ SD 300× 10 % ×200 120× 4800 Total cost = PD + 2 + Q = 300 × 4,800 + 2 + 200
= $1,445,880 The lowest total cost The lowest minimum annual cost of $1,440,000 is optimal order quantity should be purchased with more than 200 units
