A large bakery buys flour in 25-pound bags. The bakery uses an average of 1,215 bags a year. Preparing an order and receiving a shipment of flour involves a cost of \$10 per order. Annual carrying costs are \$75 per bag.

Ans:

Annual Demand D = 1215
Ordering cost per order S = 10
Annual carrying cost per unit H = 75
Working days per year D/Y =
Economic Order Quantity EOQ = 18

Actual Order Quantity Q = 18
Increment Q =
Number of orders per year D/Q = 67.5
Average Inventory Q/2 = 9
Annual carrying cost (Q/2) * H = 675
Annual ordering cost (D/Q) * S = 675
Total Annual Cost TC = 1350

a. Determine the economic order quantity.
Economic Order Quantity = 18 bags
b. What is the average number of bags on hand?
The average number of bags on hand = 9
c. How many orders per year will there be?
Number of orders per year = 67.5 ~ 68 orders
d. Compute the total cost of ordering and carrying flour.
Total cost of ordering and carrying flour = \$ 1350
e. If holding costs were to increase by \$9 per year, how much would that affect the minimum total annual cost?
If the Holding Cost increases by \$ 9 per Year

Annual Demand D = 1215
Ordering cost per order S = 10
Annual carrying cost per unit H = 84
Working days per year D/Y =
Economic Order Quantity EOQ = 17.008401

Actual Order Quantity Q = 17.008401
Increment Q =
Number of orders per year D/Q = 71.435285
Average Inventory Q/2 = 8.5042006
Annual carrying cost (Q/2) * H = 714.35285
Annual ordering cost (D/Q) * S = 714.35285
Total Annual Cost TC = 1428.7057

Minimum total annual cost will increase by = (\$1428.7057 – \$ 1350) = \$ 78.7057

A large bakery buys flour in 25-pound bags. The bakery uses an average of 1,215 bags a year Answer