A food processor uses approximately 27,000 glass jars a monthfor its fruit juice product. Each jar costs $10.8. Because ofstorage limitations, a lot size of 4,000 jars has been used. Annualholding cost is 20% of a jar’s price, and reordering cost is $60per order.
The company operates an average of 20 days a month.
Answer the following questions, showing calculation steps:
How many times a year an order size of 4000 is placed?
What is the total cost of Q=4000? (Include ordering, holding andpurchase cost)
What is optimal order quantity and its total cost?
What penalty is the company incurring by its present ordersize?
The manager would prefer ordering 10 times each month but wouldhave to justify any change in order size. One possibility is tosimplify order processing to reduce the ordering cost. Whatordering cost would enable the manager to justify ordering everyother day (i.e., 10 times a month)?
Given the discount offers, would you change your order size fromyour EOQ level and Why? Show all the steps.
Order size=Q | Price per unit |
Q<4999 | P=$10.8 |
5000<= Q <6000 | P=$10 |
Q>= 6000 | P=$9.5 |
