Question

d3-- Veritable Vegetables makes canned soups. Veritable orders 10,000 cases of frozen broccoli per year from Billy Goat Farms. You have the following additional information:

• The average cost (in the purchasing and accounting departments) to place and process a single order with Billy Goat Farms is $5.

• The average cost (in the factory) to receive and inspect a single order received from Billy Goat Farms is $20

• The average annual cost to hold a case of broccoli in inventory is $8.

• The current purchase price of one case of broccoli is $40. Given the information above and using the techniques learned in class:

a. How many cases should the purchasing manager order at the reorder point?  

b. Assuming Veritable Vegetables purchases in the quantity determined in a, what’s the total annual cost of ordering and carrying cases of frozen broccoli in inventory?

c. Determine the total annual cost (in dollars) to Luxury Luggage of ordering and carrying cases of zippers in inventory if management decided to keep a safety stock of 100 cases of zippers.

Answer 1

EOQ square of 2^nd Annual order * Ordering cost/Carrying cost per unit 62500 so EOQ = squareroot of 62500 = 2.50 a. Ans 250 cases shold purchasing manager buy in order to minimise the cost b. Ans Annual ordering cost 1000 Carrying cost Average Inventory held - 250/2 - 125 Carring cost = 125*8 = 1000 Total annual cost of ordering and carrying = 2,000 C. Ans Safety stock is 100 units reorder point will be 350 unis No of orders 28.57142857 Ordering cost Carrying cost Total cost 2525