Answer:
<h3><u>When holding costs are $35 per unit</u>,</h3>1.The most cost-effective order quantity (assuming they take the most cost-effective discount, and use a fixed holding cost) is <u>182 units</u>.
2. At the chosen level of quantity, discount, and using the fixed holding cost, the total annual cost for Bell computers to order, purchase, and hold the integrated chips is <u>$1,585,898</u>.
<h3><u>When holding costs are 10% of purchase price per unit,</u></h3>1.The most cost-effective order quantity (assuming they take the most cost-effective discount, and use a fixed holding cost) is <u>189 units</u>.
2. At the chosen level of quantity, discount, and using the fixed holding cost, the total annual cost for Bell computers to order, purchase, and hold the integrated chips is <u>$1,585,546.</u>
<h3>When holding costs are $35 per unit,</h3>We follow these steps to arrive at the answer:
1. We have
Ordering Costs per order $119
Holding Cost per unit $35
Demand per month 405 units
Demand per year is
Since the most cost-effective order quantity is the Economic Order Quantity (EOQ), we compute the EOQ
where
D is demand per year
S is the Ordering cost per order
H is the holding cost per unit
Substituting the values we get,
2. The annual costs of ordering, purchasing and holding the integrated chips is the sum of the cost of ordering, purchasing and holding the integrated chips.
Since the EOQ at 182 units falls in the second slab of Rich Blue Manufacturing, Bell computer can purchase chips at $325 per unit
Cost of purchasing the chips
Number of orders to placed
Number of orders to placed
Number of orders to placed
Cost of orders
Cost of orders
Holding Costs
Holding Costs
Holding Costs
Total annual costs
1. We need to calculate the EOQ, which holding cost at each purchase price
Since the EOQ lies between 100 and 199 units in all the three costs, Bell Computers can purchase the units only at $325 per unit, so its holding cost will be 10% of $325, which is $32.50 per unit.
2.2. The annual costs of ordering, purchasing and holding the integrated chips is the sum of the cost of ordering, purchasing and holding the integrated chips.
Since the EOQ at 189 units falls in the second slab of Rich Blue Manufacturing, Bell computer can purchase chips at $325 per unit
Cost of purchasing the chips
Number of orders to placed
Number of orders to placed
Number of orders to placed
Cost of orders
Cost of orders
Holding Costs
Holding Costs
Holding Costs
Total annual costs