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Determining the cheapest order policy in the given case

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A local nursery, Greens, uses 1560 bags of plant food annually. It costs $10 to place an order for plant food. In an effort to reduce its inventory Rapid Grower, the supplier of plant food for Green, is offering Greens two additional price breaks to consider. If the nursery orders a three-month supply, the cost per bag s $16. If Greens orders a six-month supply, the cost per bag is $14.50. Greens estimates its holding cost to be 25 percent of the unit price. Determine the most cost-effective ordering policy for Greens

It is cheapest to order a 3-month supply

It is cheapest to order a 6-month supply.

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Solution Summary

Solution determines the cheapest order policy in the given case.

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Case 1

6 month supply order
Total demand=D=1560

Price offered=$14.50
Total Purchase Cost=14.50*1560=$22620

Number of orders per year=2
Per Order Cost=$10
Total order Cost=2*10=$20

Order quantity=1560/2=780
Average ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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