MGMT 420 Module 6 Review.docx

# D what is the total cost for the most economic order

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d) What is the total cost for the most economic order size? Since the annual demand is 9,600, the quantity should be ordered for both suppliers is approximately 28 orders. Supplier 1: Setup cost: 28 x 50 = \$1,400 Holding cost: 0.5 x 17 x 9,600 = \$81,600 Unit cost: 9,600 x 17 = \$163,200 Total cost: \$246,200 Supplier 2: Setup cost: 28 x 50 = \$1,400 Holding cost: 0.5 x 17.20 x 9,600 = \$82,560 Unit cost: 9,600 x 17.20 = \$165,120 Total cost: \$249,080 Supplier 1 has better total cost value than supplier 2. The business should choose supplier 1, which has the total cost of \$246,200, insteal of supplier2, which has the total cost of \$249,080. Part 4 The basic EOQ model considers basic ordering and holding costs that might affect inventory decisions. Identify some other costs that may affect inventory decisions discuss an advanced modeling approach that considers those costs.

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According to Heizer, Render, & Munson (2017), some other costs that can affect the inventory decisions are the actual costs of materials purchased (material cost) that included in the inventory cost. While this type of cost doesn’t depend on the order policy, many businesses still incur the annual material cost of demand times price (D x P). In addition, the cost of products (item cost) that can also affect the inventory decision. The type of model that considers this cost is the quantity discount model. This model is used when discounts are given to businesses who ordered larger quantities of products. A quantity discount can be defined as a reduced price for a product when purchased in large quantities. This model has similar calculations to the standard EOQ.
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• Fall '14
• miller

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