Order Size and Annual Costs
Not what you're looking for?
See the attachment.
1. A large law firm uses an average of 40 boxes of copier paper a day. The firm operates 260 days a year. Storage and handling costs for the paper are $30 a year per box, and it costs approximately $60 to order and receive a shipment of paper.
a. What order size would minimize the sum of annual ordering and carrying costs?
b. Compute the total annual cost using your order size from Part a.
c. Except for rounding, are annual ordering and carrying costs always equal at the EOQ?
d. The office manager is currently using an order size of 200 boxes. The partners of the firm expect the office to be managed "in a cost efficient manner". Would you recommend that the office manager use the optimal order size instead of 200 boxes? Justify your answer.
2. A chemical firm produces sodium bisulfate in 100-pound bags. Demand for this product is 20 tons per day. The capacity for producing the product is 50 tons per day. Setup costs $100, and storage and handling costs are $5 per ton a year. The firm operates 200 days a year. (Note: 1 ton = 2,000 pounds.)
a. How many bags per run are optimal?
b. What would the average inventory be for this lot size?
c. Determine the approximate length of a production run, in days.
d. About how many runs per year would be there?
e. How much could the company save annually if the setup cost could be reduced to $25 per run?
3. A mail-order house uses 18000 boxes a year. Carrying costs are .60 cents per box a year, and ordering costs are $96. The following price schedule applies. Determine
a. The optimal order quantity
b. The number of orders per year
Number of boxes Price per box ($)
1000 to 1999 1.25
2000 to 4999 1.20
5000 to 9999 1.15
10000 or more 1.10
Number.
Purchase this Solution
Solution Summary
The solution discusses order size and annual costs.
Education
- BE, Bangalore University, India
- MS, University of Wisconsin-Madison
Recent Feedback
- "Your explanation to the answers were very helpful."
- "What does 1 and 0 means in the repair column?"
- "Went through all of the formulas, excellent work! This really helped me!"
- "try others as well please"
- "Thank you, this helped a lot. I was not sure how to plug in those numbers to a formula. This was a great help. Now I have to figure out how to explain cost of capital is used in net present value analysis, and how cost of capital is used in net present value analysis. This stuff gets confusing."
Purchase this Solution
Free BrainMass Quizzes
Lean your Process
This quiz will help you understand the basic concepts of Lean.
MS Word 2010-Tricky Features
These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.
Motivation
This tests some key elements of major motivation theories.
Understanding Management
This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.
IPOs
This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)