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Question 1 A paint manufacturer uses 3,200 liters of chemicals a year. Currently the firm purchases 400 liters per order and pays $3 per liter. To secure more long-term business, the supplier is willing to sell at $2 per liter for orders that is 1,000 liters or more. The paint manufacturer incurs an ordering cost of $100 and holding cost of 17% of the purchase price per liter. a) Determine the order size that will minimize the total cost. b) If the supplier offered the discount at 1,500 liters instead of 1,000 liters, what order size would minimize total cost?

Question 1 A paint manufacturer uses 3,200 liters of chemicals a year. Currently the firm purchases 400 liters per order and pays $3 per liter. To secure more long-term business, the supplier is willing to sell at $2 per liter for orders that is 1,000 liters or more. The paint manufacturer incurs an ordering cost of $100 and holding cost of 17% of the purchase price per liter. a) Determine the order size that will minimize the total cost. b) If the supplier offered the discount at 1,500 liters instead of 1,000 liters, what order size would minimize total cost?

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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Question 1 A paint manufacturer uses 3,200 liters of chemicals a year. Currently the firm purchases 400 liters per order and pays $3 per liter. To secure more long-term business, the supplier is willing to sell at $2 per liter for orders that is 1,000 liters or more. The paint manufacturer incurs an ordering cost of $100 and holding cost of 17% of the purchase price per liter. a) Determine the order size that will minimize the total cost. b) If the supplier offered the discount at 1,500 liters instead of 1,000 liters, what order size would minimize total cost?
Transcribed Image Text:Question 1 A paint manufacturer uses 3,200 liters of chemicals a year. Currently the firm purchases 400 liters per order and pays $3 per liter. To secure more long-term business, the supplier is willing to sell at $2 per liter for orders that is 1,000 liters or more. The paint manufacturer incurs an ordering cost of $100 and holding cost of 17% of the purchase price per liter. a) Determine the order size that will minimize the total cost. b) If the supplier offered the discount at 1,500 liters instead of 1,000 liters, what order size would minimize total cost?
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