Reference no: EM133128335

Question - Candyland Ltd. is the main supplier of fruit candies to customers. The company currently makes 72,000,000 packs of candies annually which uses fruit nectar. Each candy uses 0.0003 kilograms of fruit nectar which is used evenly during the period. Candyland sells one pack of candy for $360 each which includes a mark-up of 20%. The company currently makes nine equal orders which are made instantaneously.

The main supplier of the fruit nectar has indicated to our management team that bulk discounts are being offered. A 4% discount will be given for orders 600 kilograms above the current order size, a 7.5% discount for orders of 1,200 kilograms above the current lot size, 10% discount if the current order size is doubled. No discounts are given for orders less than the current lot size.

Usually, it takes $250 per hour to place an order and each other takes on average 3 hours. The holding cost per unit is $4 plus an opportunity cost of 2% of the current cost of making one pack of candy. The current purchase price of the fruit nectar is 60% of the cost to make one pack of candy.

Required -

Calculate the Economic Order Quantity (EOQ).

Calculate the total cost based on the EOQ.

Calculate the total cost for each individual alternate order quantities, including the current policy.

What is the optimal order quantity and why?