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Homework answers / question archive / Determine optimal number to order D = 1,000 units S = $10 per order H = $

Determine optimal number to order D = 1,000 units S = $10 per order H = $

Accounting

Determine optimal number to order D = 1,000 units S = $10 per order H = $.50 per unit per year The pack has 150 units each Management underestimated demand by 50% C = $5/unit There is a discount of 5% per unit if you buy more than 500 units .

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At Management's estimated Demad i.e. 1000 units

Calculation of total cost at different order level      
Optimal numbers to order (in units) No. of orders Total purchasing cost Total Ordering Cost Total Carrying Cost Total Cost
                           150                                 7 $                    5,000 $                          70 $                          38 $                    5,108
                           300                                 4 $                    5,000 $                          40 $                          75 $                    5,115
                           450                                 3 $                    5,000 $                          30 $                        113 $                    5,143
                           600 2 $                    4,750 $                          20 $                        150 $                    4,920
                           750                                 2 $                    4,750 $                          20 $                        188 $                    4,958
                           900                                 2 $                    4,750 $                          20 $                        225 $                    4,995
           
        Minimum Cost $                    4,920

It would be viable to order in lot size of 600 units, because total cost in less compared to other lot sixe.

At Actual Demad i.e. 2000 units

Calculation of total cost at different order level      
Optimal numbers to order (in units) No. of orders Total purchasing cost Total Ordering Cost Total Carrying Cost Total Cost
                           150                               14 $                  10,000 $                        140 $                          38 $                  10,178
                           300                                 7 $                  10,000 $                          70 $                          75 $                  10,145
                           450                                 5 $                  10,000 $                          50 $                        113 $                  10,163
                           600                                 4 $                    9,500 $                          40 $                        150 $                    9,690
                           750                                 3 $                    9,500 $                          30 $                        188 $                    9,718
                           900                                 3 $                    9,500 $                          30 $                        225 $                    9,755
                        1,050                                 2 $                    9,500 $                          20 $                        263 $                    9,783
                        1,200                                 2 $                    9,500 $                          20 $                        300 $                    9,820
                        1,350                                 2 $                    9,500 $                          20 $                        338 $                    9,858
                        1,500                                 2 $                    9,500 $                          20 $                        375 $                    9,895
                        1,650                                 2 $                    9,500 $                          20 $                        413 $                    9,933
                        1,800                                 2 $                    9,500 $                          20 $                        450 $                    9,970
                        1,950                                 2 $                    9,500 $                          20 $                        488 $                  10,008
           
        Minimum Cost $                    9,690

It would be viable to order in lot size of 600 units, because total cost in less compared to other lot sixe.

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