13 April, 04:28

# The catering manager of lavista 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.

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1. 13 April, 05:28
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A. 16,971 pieces

B.\$530.34

C.\$530.32

Explanation:

a)

EOQ = √2∗A∗B:C

EOQ = Economic Order Quantity

A = Annual Demand

C = Carrying Cost per unit per year

Hence:

A = 45,000 pieces

B = \$200 per order

C = \$1.25 * 5% per unit per year

= \$0.0625

EOQ = √2∗45,000∗\$200 : \$0.0625

= 16,970.56 approximately 16,971 pieces

b)

Annual Holding Cost = Average Inventory * Holding Cost per unit per year

Average Inventory = EOQ:2

Using the formula

Annual Holding Cost = 16,971 : 2 ∗\$0.0625

Annual Holding Cost = 8,485.5*\$0.0625

Annual Holding Cost = \$530.34

c)

Annual Ordering Cost = Ordering Cost Per order * No. of Orders

No. of Orders = Annual Demand:EOQ

Annual Ordering Cost = \$200∗45,000: 16,971

Annual Ordering Cost = \$9,000,000:16,971

Annual Ordering Cost = \$530.32