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    Operations Management Inventory Quantity Discounts

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    Please show your calculations and round to FOUR decimal places.

    A retailer needs to choose between two suppliers for one of its products. The only criterion used for the decision is the cost. The following information about the product is available:

    Demand 200 a week
    Ordering cost (for all suppliers) $75 per order
    Holding cost 20% of the unit cost
    Working weeks 50 a year

    The retailer has narrowed down the choices to two suppliers. The following shows the price-break schedule for each supplier:
    SUPPLIER A SUPPLIER B
    Quantity Unit Price Quantity Unit Price
    1-299 $14.00 1-249 $14.10
    300-699 13.80 250-449 13.90
    700+ 13.60 450+ 13.70

    A. Which supplier should the retailer choose? Explain and support your answer with appropriate calculations.
    B. What is the optimal lot size for the item? (Note: There has to be only ONE choice, regardless of supplier).
    C. What is the total annual cost of inventory for the chosen (best) lot size?

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    Solution Preview

    Operations Management - Inventory Management Quantity Discount
    Please show your calculations and round to FOUR decimal places.
    A retailer needs to choose between two suppliers for one of its products. The only criterion used for the decision is the cost. The following information about the product is available:
    Demand 200 a week
    Ordering cost (for all suppliers) $75 per order
    Holding cost 20% of the unit cost
    Working weeks 50 a year
    The retailer has narrowed down the choices to two suppliers. The following shows the price-break schedule for each supplier:
    SUPPLIER A SUPPLIER B
    Quantity Unit Price Quantity Unit Price
    1-299 $14.00 1-249 $14.10
    300-699 13.80 250-449 13.90
    700+ 13.60 450+ 13.70
    A. Which supplier should the retailer choose? Explain and support your answer with appropriate calculations.
    B. What is the optimal lot size for the item? (Note: There has to be only ONE choice, regardless of supplier).
    C. What is the total annual cost of inventory for the chosen (best) lot size?

    D = 200
    Ordering Cost = CO = 75
    Holding Cost = CH = .20

    Let's calculate the Annual Demand
    Annual Demand = Weekly Demand X Number Operation Weeks Per Year
    D ...

    Solution Summary

    Inventory management has two main types of quantity discount models. We examine the all units discounts to determine which supplier to select and the best ordering quantity.

    $2.19