Assignment Ch12(b) A small manufacturing firm uses approximately 3400 pounds of chemical dye per year. Currently the firm purchases 300 pounds per order.

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Presentation transcript:

Assignment Ch12(b) A small manufacturing firm uses approximately 3400 pounds of chemical dye per year. Currently the firm purchases 300 pounds per order and pays $3 per pound. The ordering cost is $100 and inventory carrying cost is 51 cents per unit per year. D= 3400, S= 100, H=.51 a) The supplier has just announced that orders of 1000 pounds and more will be filled at a price of $2 per pound. Determine the order size that will minimizes the total cost. b) If the supplier offered a discount at 1500 pounds instead of 1000 pounds, what order size will minimize total cost?

Ordering and Carrying Costs The Total-Cost Curve is U-Shaped Annual Cost Ordering Costs QO (optimal order quantity) Order Quantity (Q)

Ordering, Carrying, and Purchasing Costs Adding Purchasing cost doesn’t change EOQ TC with PD TC without PD PD EOQ Quantity

Price Discount p1 Cost p2 Quantity

Total Cost Including Purchasing Cost EOQ Quantity

Price Breaks: EOQ Preferred Cost EOQ Quantity

Price Breaks: Discount Point Preferred Cost Quantity Q

Price Breaks: EOQ Preferred Cost EOQ Quantity

DONE The Problem: Part A A small manufacturing firm uses approximately 3400 pounds of chemical dye per year. Currently the firm purchases 300 pounds per order and pays $3 per pound. The ordering cost is $100 and inventory carrying cost is 51 cents per unit per year. D=3400, S= 100, H=.51 a) The supplier has just announced that orders of 1000 pounds and more will be filled at a price of $2 per pound. Q P 0-999 3 ≥1000 2 DONE

The Problem: Part B A small manufacturing firm uses approximately 3400 pounds of chemical dye per year. Currently the firm purchases 300 pounds per order and pays $3 per pound. The ordering cost is $100 and inventory carrying cost is 51 cents per unit per year. D=3400, S= 100, H=.51 b) Determine the order size that will minimizes the total cost. If the supplier offered a discount at 1500 pounds instead of 1000 pounds, what order size will minimize total cost? Q P 0-... 3 ≥1500 2

The Problem: Part B D= 3400, S=100, H= .51 TC = HQ/2 + SD/Q + PD b) If the supplier offered a discount at 1500 pounds instead of 1000 pounds, what order size will minimize total cost? Q P 0-... 3 ≥1500 2 D= 3400, S=100, H= .51 TC = HQ/2 + SD/Q + PD TC ( Q = 1155 , P = 3) = 0.51(1155)/2 + 100(3400)/1155 + 3(3400) TC = 294.5 + 294.5 + 10200 = 10789 TC ( Q = 1500 , P = 2) = 0.51(1500)/2 + 100(3400)/1500 + 2(3400) TC = 382.5+226.7 +6800 = 7409.2