Purchase Solution

EOQ- Proofs for total cost

Not what you're looking for?

Ask Custom Question

3. Consider a DAG supermarket selling chicken noodle soup manufactured by the Campbell Soup Company. Customer demand for chicken noodle soup is R cans per year. The price Campbell charges is $C per can. DAG incurs a holding cost rate of {see attachment}. The ordering cost is $K per order. Using the EOQ formula, DAG normally orders in the following lot sizes: {see attachment}
Campbell announces that it is offering a one-time-only discount of $d per can. Let Qd be the lot size ordered at the discounted price. Let t := Qd=Q¤.

(See attached file for complete details)

Purchase this Solution

Solution Summary

Provides proofs for inventory costs.

Solution Preview

See attached file

R= no of cans per year
c= cost per can
d= discount per can
K= ordering cost
Q*= economic order quantity
alpha = holding cost

a) Without discount

Cost per year= Material Cost + Ordering Cost + Holding Cost
Material Cost= cR
Ordering Cost= (R/Q*) K
Holding Cost= (Q*/2) c alpha

Total cost per year= Material Cost + Ordering Cost + Holding Cost
= cR + (R/Q*) K + (Q*/2) c alpha

At the economic order quantity Ordering cost= Holding cost

(R/Q*) K = (Q*/2) c alpha

So we can write total cost per year
=cR + (R/Q*) K + (Q*/2) c alpha = cR + (Q*/2) c alpha + (Q*/2) c alpha = cR + Q* c alpha

Total cost per year= cR + Q* c alpha

Total cost in next t (Q */R) time units= (cR + Q* c alpha ) x t ...

Purchase this Solution

Free BrainMass Quizzes
Employee Orientation

Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.

Income Streams

In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

Marketing Management Philosophies Quiz

A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.