Compute total annual cost of ordering and carrying flour

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Reference no: EM132251004

Please provide detailed steps (intermediate formula and final result) for each answer.

A large bakery buys flour in 25-pound bags. The bakery uses an average of 4860 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.

a) Determine the economic order quantity.

b) Compute the total annual cost of ordering and carrying flour when the economic order quantity is used as the order quantity.

c) If ordering costs were to increase by $1 per order, how much would that affect the minimum total annual cost?

d) Assume the supplier only accepts orders that are multiples of five bags. What should be the ordering quantity for the bakery? Hint: Find the two numbers (that are multiples of five) that are closest to the economic order quantity determined in part a). Compute the total annual cost assuming the order quantity is one of the two numbers. The order quantity that yields the lower annual cost would be the optimal order quantity.

Reference no: EM132251004

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