Question: PLEASE PROVIDE THE EQUATION USED AND THE ANSWER!! A shop offers a scented candle, which has a monthly demand of 900 boxes. Candles are delivered
PLEASE PROVIDE THE EQUATION USED AND THE ANSWER!!
A shop offers a scented candle, which has a monthly demand of 900 boxes. Candles are delivered by a supplier at a shipment cost of $200. The supplier, candle factory, produces in batches. The setup cost for production is $250 per batch and the unit production cost is $2 per box. The factory charges the store $5 per box. Assume that demand is uniform throughout the month, and holding cost is $1 per box on a monthly basis.
- What is the optimal order quantity of the candle shop? [Hint: Solve an EOQ problem for the candle shop with setup cost $200, holding cost $1, and demand rate 900.]
- What is the monthly cost of the store by ordering the quantity obtained in part a)? [Hint: Compute the total cost of the EOQ model with setup cost $200, holding cost $1, demand rate 900, and unit purchasing price $5.]
- What is factorys monthly profit if it is producing at a batch size obtained in part a). [Hint: We first need to compute how many batches should be produced in a month, which gives us the total setup cost for the factory. The margin per box of the candle is the difference between the unit selling price to the store and the unit production cost.]
- Suppose, the factory is providing a discount price menu to the store. A unit price of $5 is charged for any order size less than 900 boxes, and a unit price of $4.9 is charged for any order size greater than or equal to 900 boxes. Should the store take the discount? If so, how does the total cost of the store change?
- If the store is ordering according to part d), how does the profit of the factory change? Comparing to the number obtained in part c), does the store have the incentive to provide the quantity discount?
- Now suppose that the factory and the store belong to the same company. How many boxes should be produced and shipped in a batch? What is the supply chain total cost? Compare this with your answers in part d) and e). [Hint: Solve an EOQ model for the supply chain with setup cost $200+$250, purchasing price $2 per box, holding cost $1 per box per month, and demand 900 boxes per month. This exercise illustrates how quantity discount can help to coordinate supply chain decisions.]
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