Question

If a Drywall Company uses 200 sheets of Drywall a week and the price of Drywall is $10 a sheet, Delivery Cost is $60 and two (2) days and the Storage Cost is 30%. Presume the workweek is 5 days a week and there are 52 weeks in the work year.

a) What is the Economical Order Quantity?

b) How much annually does the company spending on SetUp Charges Consumption, and Storage Cost of Drywall?

Answer 1

Answer

given,

annual demand (D) =200 sheets/ week

cost of unit  = $10

Delivery cost = $60

Holding cost (C_0) = $60 per year

storage cost (C_c)= 30 % of unit cost

                     = 0.3 x $10 = $3

a) Economic order quantity Q

$Q = \sqrt{\dfrac{2DC_0}{C_c}}$

$Q = \sqrt{\dfrac{2\times 200 \times 52\times \ 60}{\ 3}}$

$Q = \sqrt{416000}$

    Q = 645 units/order

b) Annual set up cost

      = $\dfrac{D}{Q} \times C_o$

      = $\dfrac{200\times 52}{645} \times 60$

      = $ 967.44/year

Annual storage cost

      = $\dfrac{Q}{2} \times C_c$

      = $\dfrac{645}{2} \times 3$

      = $ 967.5/year

Annual consumption cost

     = D x Cu

     = 200 x 52 x 10

     = $104000/year

Total expense

    = $ 967.44/year + $ 967.5/year + $104000/year

    = $ 105934.94/years