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What is the optimal order size

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Mr. X is considering starting a new business of selling hoodies with IU-logo. The annual demand is 1200. Assume that demand is perfectly steady throughout time. Mr. X can purchase the hoodies from supplier Mr. Y for a price of $40 per hoodie and a $2000 fixed cost for every order placed independent of the order size. The annual holding cost for each hoodie is 50% of its wholesale price.

a. What is the optimal order size?(EOQ)

b. If the lead time is 3 weeks, what is the reorder point? (Assume there are 50 weeks per year)

c. Based on the EOQ what is Mr. X's fixed cost of placing orders per year?

d. Based on the EOQ what is Mr. X's holding cost per year?

e. Suppose Mr. X finds out another supplier, Mr. Z, before he signs the purchase contract with Mr. Y. If Mr. X buys hoodies from Mr. Z, he places only one order per year with order size of the whole year demand (i.e., 1200). Mr. Z offers a price of $30 per hoodie and a fixed cost of $11000 for delivery.

Assume the annual holding cost for each hoodie is 50% its wholesale price. What are the total fixed cost and total holding cost per year if order from Mr. Z? Should Mr. X order from Mr. Y or Mr. Z? Quantitatively justify your answer.

Reference no: EM132723236

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