The catering manager of La Vista Hotel, LisaFerguson, is disturbed by the amount of silverware she is losing every week. Last Friday night, when her crew tried to set up for a banquet for 500 people, they did not have enoughknives. She decides she needs to order some more silverware,but wants to take advantage of any quantity discounts hervendor will offer.For a small order (2,000 or fewer pieces), her vendorquotes a price of $1.80Ypiece.If she orders 2,001–5,000 pieces, the price drops to$1.60Ypiece. 5,001–10,000 pieces brings the price to$1.40Ypiece, and 10,001 and above reduces the price to $1.25.Lisa’s order costs are $200 per order, her annual holdingcosts are 5%, and the annual demand is 45,000 pieces. For thebest option:a) What is the optimal order quantity?b) What is the annual holding cost?c) What is the annual ordering (setup) cost?d) What are the annual costs of the silverware itself with anoptimal order quantity?e) What is the total annual cost, including ordering, holding,and purchasing the silverware?

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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The catering manager of La Vista Hotel, Lisa
Ferguson, is disturbed by the amount of silverware she is losing every week. Last Friday night, when her crew tried to set up for a banquet for 500 people, they did not have enough
knives. She decides she needs to order some more silverware,
but wants to take advantage of any quantity discounts her
vendor will offer.
For a small order (2,000 or fewer pieces), her vendor
quotes a price of $1.80Ypiece.
If she orders 2,001–5,000 pieces, the price drops to
$1.60Ypiece. 5,001–10,000 pieces brings the price to
$1.40Ypiece, and 10,001 and above reduces the price to $1.25.
Lisa’s order costs are $200 per order, her annual holding
costs are 5%, and the annual demand is 45,000 pieces. For the
best option:
a) What is the optimal order quantity?
b) What is the annual holding cost?
c) What is the annual ordering (setup) cost?
d) What are the annual costs of the silverware itself with an
optimal order quantity?
e) What is the total annual cost, including ordering, holding,
and purchasing the silverware?

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