Question

:6-45 Georgia Products offers the following discount schedule for its 4- by 8-foot sheets of good-quality plywood: 9 sheets or less 10 to 50 sheets More than 50 sheets UNIT COST (S) 18.00 17.50 17.25 Home Sweet Home Company orders plywood from Georgia Products. Home Sweet Home has an order- ing cost of $45. The carrying cost is 20%, and the an- nual demand is 100 sheets. What do you recommend?

Answer 1

Answer:

• D = annual demand = 100 units
• h = handling cost per unit
• S = Ordering cost per order = $45
• EOQ = optimal ordering quantity = [ (2*D*S) / h ]^1/2

Taking Case of 9 sheets or less:

• Unit Cost = $18
• H = carrying cost = 20% of unit cost = $3.6
• EOQ taking 9 or less case = [ (2*100*45) / 3.6] ^1/2 = 50
• But EOQ= 50 is not less than 9 (contrary to Our case ) , so this is rejected.

Similarly taking 10 to 50 units case;

• Unit Cost = $17.5
• H = carrying cost = 20% of unit cost = $3.5
• EOQ taking 9 or less case = [ (2*100*45) / 3.5] ^1/2 = 50.709
• But EOQ = 50.7 is more than 50 ( contrary to Our case ) , so this is rejected.

Similarly taking more than 50 units case;

• Unit Cost = $17.25
• H = carrying cost = 20% of unit cost = $3.45
• EOQ taking 9 or less case = [ (2*100*45) / 3.45] ^1/2 = 51.07
• But EOQ = 51.075 is more than 50 (Our case ) , so this is our EQ

They should order 51 units per order. (Answer)