Respuesta :
Answer:
a) Total annual inventory cost (including purchase cost) for the current supplier = $421,154
b) Annual holding cost for the new supplier (when purchasing 3,000 each order) = $3,675
c) Total annual inventory cost = $389,298
d) Since the total cost has reduced, Flora Beauty should choose the new supplier option.
Explanation:
Annual demand, D = 22,000
Unit cost, C = $19
Ordering cost, K = $85
Unit carrying cost, h = 14% of C
h = 0.14*19 = $2.66
(a) Total annual inventory cost for the current supplier, [tex]T_c[/tex]
[tex]T_c = (D*C) + (\frac{Q'h}{2} ) + \frac{DK}{Q'}[/tex]...........(1)
Economic order quantity,Q'
[tex]Q' = \sqrt{2DK/2.66} \\Q' = \sqrt{2*22000*85/2.66}\\Q' = 1186 units[/tex]
Su bstitute Q' and other parameters into Tc
[tex]T_c = (D*C) + (\frac{Q'h}{2} ) + \frac{DK}{Q'}[/tex]
[tex]T_c = (22000*19) + \frac{1186*2.66}{2} + \frac{2000*85}{1186} \\T_c = \$421,154[/tex]
(b)
Q = 3000
C = $17.50
h = 0.14*17.50 = 2.45
Annual holding cost for the new supplier = (Q/2)*h = (3000/2)*2.45 = $3,675
(c)
Total annual inventory cost = (D*C) + (Q/2)*h + (D/Q)*K
Total annual inventory cost = (22000*17.5) + (3000/2)*2.45 + (22000/3000)*85
Total annual inventory cost for the new supplier = $389,298
d)
Since the total cost has reduced, Flora Beauty should choose the new supplier option.
