Markus Ribs Steak House consumes 1150 kilograms of sirloin steak each month. Assume that the steak house operates for 12 months in a year. Andries van der Berg, the new Dutch restaurant manager, recently completed an industrial engineering degree. He learned that the steak was replenished using an EOQ value of 820 kilograms. The EOQ value was computed assuming an interest rate of i percent per year. Assume that the current purchasing cost of the sirloin steak to the steak house is $ 64 per kilogram.

a) What is the ordering cost used in determining the EOQ value 820 ?

b) Andries van der Berg received an offer from a meat wholesaler in which a discount of 8 percent would be given for each kilogram of steak if the steak house purchases the steak in quantities of 1150 kilograms or more. No discount is offered for quantities less than 1150 kilograms and the meat wholesaler will still charge $ 64 per kilogram. • Should Andries van der Berg accept the offer from the wholesaler? • If so, what is the optimal order quantity and how much can be saved?

c) Because of Andries van der Berg’s language problems, he apparently misunderstood the offer. In fact, the 8 percent discount is applied only to the amounts ordered beyond 1150 kilograms. That is, for quantities up to 1150 kilograms, the meat wholesaler will still charge $ 64 per kilogram; and for each unit including and above 1150 kilograms, the meat wholesaler will apply 8 percent discount only for the excess kilograms above 1150.

• Should this offer be accepted?

• If so, what is the optimal order quantity and how much is now saved?

Answer rating: 100% (QA)

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