Ask Question
13 October, 08:40

Now consider the case in which the manufacturer offers a marginal unit quantity discount for the plywood. The first 20,000 square feet of any order are sold at $1 per square foot, the next 20,000 square feet are sold at $0.98 per square foot, and any quantity larger than 40,000 square feet is sold for $0.96 per square foot. What is the optimal lot size for Prefab given this pricing structure? How much cycle inven

+1
Answers (1)
  1. 13 October, 11:45
    0
    We can use the following method to solve the given problem

    We are given following

    Annual demand,

    D = 20000*12

    D = 240,000 sqft

    Fixed order cost, is given as

    S = $ 400

    Considering the unit cost, is given as

    C = $ 1

    Holding cost, H = 1*20% = $ 0.2

    EOQ = sqrt (2DS/H)

    = √ (2*240000*400/0.2)

    = 30,984 sq ft

    This is higher than 20,000 and less than 40,000 sq ft. For this reason, the applicable price for this quantity is $ 0.98

    For C = $ 0.98, holding cost, H = 0.98*20% = $ 0.196

    Revised EOQ = sqrt (2*240000*400/0.196) = 31,298 sq ft

    Total annual cost of EOQ policy = D*C + H*Q/2 + S*D/Q

    = 240000*0.98 + 0.196*31298/2 + 400*240000/31298

    = $ 241,334.5

    Now consider the next level of price, C = $ 0.96

    Holding cost, H = 0.96*20% = $ 0.192

    EOQ = sqrt (2*240000*400/0.192)

    = 31633 sqft

    This amount is will not be feasible for this price, because it requires a minimum order of 40000 sqft.

    Therefore, Q = 40,000

    Total annual cost = 240000*0.96 + 0.192*40000/2 + 400*240000/40000

    Total annual cost = $ 236,640

    Total annual cost is lowest for order quantity of 40,000 sq ft.

    1) Optimal lot size = 40,000 sq ft.

    2) the annual cost of this policy

    = $ 236,640

    3) the cycle inventory of plywood at Prefab = Q/2 = 40000/2

    At prefeb = 20,000 sq ft

    4) let's assume the manufacturer sells all plywood at $ 0.96, then

    Holding cost, H = 0.96*20%

    H = $ 0.192

    EOQ = sqrt (2*240000*400/0.192)

    EOQ = 31633 sqft

    Total annual cost = 240000*0.96 + 0.192*31633/2 + 400*240000/31633

    Total annual cost = $ 236,471.6

    Difference in total annual cost = 236640 - 236471.6 = $ 168.4
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Now consider the case in which the manufacturer offers a marginal unit quantity discount for the plywood. The first 20,000 square feet of ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers