WinCo Inc. purchases 11,250 litres of a material each year from a single supplier. Currently, the...

Transcribed Image Text:

WinCo Inc. purchases 11,250 litres of a material each year from a single supplier. Currently, the company obtains materials in batches of 2,250 litres. The material costs $7.50 per litre, the cost of ordering a new batch from the supplier is $4 per hour. It takes 4 hours to place an order. The cost of holding one litre in stock is $0.69 per annum plus an interest cost equal to 10% of the purchase price of the material. The supplier has agreed to offer a discount on orders above a certain size. He has offered the following price structure: Order size (litres) 0-1,249 1,250-2,499 2,500 and above Unit cost $7.50 $7.10 $6.90 Required: (a) Prior to considering discounts, calculate the: (i) Economic order quantity. (3 marks) (ii) Annual savings that will be obtained if the EOQ replaced the current lot size. (7 marks) (b) The supplier has offered quantity discounts based on the price structure indicated above, after considering discounts, advise management of the optimal order size (including the current quantity at a discounted unit cost). (9 marks) WinCo Inc. purchases 11,250 litres of a material each year from a single supplier. Currently, the company obtains materials in batches of 2,250 litres. The material costs $7.50 per litre, the cost of ordering a new batch from the supplier is $4 per hour. It takes 4 hours to place an order. The cost of holding one litre in stock is $0.69 per annum plus an interest cost equal to 10% of the purchase price of the material. The supplier has agreed to offer a discount on orders above a certain size. He has offered the following price structure: Order size (litres) 0-1,249 1,250-2,499 2,500 and above Unit cost $7.50 $7.10 $6.90 Required: (a) Prior to considering discounts, calculate the: (i) Economic order quantity. (3 marks) (ii) Annual savings that will be obtained if the EOQ replaced the current lot size. (7 marks) (b) The supplier has offered quantity discounts based on the price structure indicated above, after considering discounts, advise management of the optimal order size (including the current quantity at a discounted unit cost). (9 marks)

Answer rating: 100% (QA)

a Prior to considering discounts calculate the i Economic order quantity EOQ The Economic Order Quantity EOQ is a formula used to determine the optimal order quantity that minimizes the total inventor... View the full answer