Considering that if the lead buyer orders in quantities of 300, he can get a 4% discount on the cost of the detectors.
1) locke's distributors has has an annual demand for a port authority’s metal detector of 1400 units. The cost of a detector is $400. The transportation cost is 20% of the unit cost and the ordering cost is $25 per order. Considering that if the lead buyer orders in quantities of 300, he can get a 4% discount on the cost of the detectors.
Should the company accept the discount?
2) Adam is responsible for monitoring supplies at the Hospital. During the past year, the mean lead time demand for a certain brand of antibiotic was 60. with a lead time standard deviation of 7. Adam would like to maintain a 90% service probability level. What is the most suitable reorder point?
1)
Given that,
Annual Demand = 1400 units
Carrying cost per unit per annum= 20% of $400 = $80
Ordering cost per unit= $25
Economic order quantity = = 29.58 units ~ 30 units (Approximately)
Statement of comparison of the total cost, when reorder quantity is 30 units and 300 units:
| Particulars | reorder quantity = 30 units [At EOQ] | reorder quantity = 300 units [At discount] |
| Total unit cost | 1400*400= 560000 | 1400*384=537600 |
| Total ordering cost | 1400/30 * 25 = 1167 | 1400/300 * 25 = 117 |
| Total carrying cost | 30/2 * 80 = 1200 | 300/2 * 76.8 = 11520 |
| TOTAL COST | 562367 | 549237 |
Therefore, the company should accept the discount as taking the discount would lead to less cost compared to ordering at Economic order quantity
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