curve, which is where the ordering and holding cost curves intersect (they
equal).
d) TC
380
=
Difference between TC
380
and TC
344
= $345.37
–
$343.63 = $1.74
The difference between the current order size and the optimal order quantity is
380-344 = 36 packages and the total annual cost of ordering and holding the 380
boxes is $345.37, which is only $1.74 more expensive than the optimal order
quantity’s total cos
t. Therefore, the difference of $1.74 per year is not big enough
to suggest that the office manager should change his current order size (only
$1.74 higher than with EOQ, so 380 is acceptable).
2. Expected annual demand = 800 boxes/month * 12 months = 9600
boxes/year
For Supplier A:
Annual holding cost:
Quantity
(1-199)
: $14.00*25% = $3.50
Quantity
(200-499)
: $13.80*25% = $3.45
Quantity
(500+)
: $13.60*25% = $3.40
EOQ
(1-199)
=
468.43 (not feasible, adjust to 199)