Each order to minimize sum of ordering and holding costs

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Reference no: EM132190236

Joe Birra needs to purchase malt for his micro-brew production. His supplier charges $40 per delivery (no matter how much is delivered) and $1.15 per gallon. Joe’s annual holding cost is 25% of the price per gallon. Joe uses 200 gallons of malt per week.

1. How many gallons should Joe order from his supplier with each order to minimize the sum of ordering and holding costs?

2. Suppose Joe orders the quantity from part (c) that minimizes the sum of the ordering and holding costs each time he places an order with the supplier. What is the annual cost of the EOQ expressed as a percentage of the annual purchase cost?

3. If Joe's supplier only accepts orders that are an integer multiple of 1,000 gallons, how much should Joe order to minimize ordering and holding costs per gallon?

4. Joe's supplier offers a 3.00% discount if Joe is willing to purchase 8000 gallons or more. What would Joe's total annual cost (purchasing, ordering and holding) be if he were to take advantage of the discount?

Reference no: EM132190236

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