Scenario 9.9
"Gollee those cats sure go through a lot of food," Geoff exclaimed as he saw the shopping list pad that had been pre-printed with the words "cat food" at the top. He pondered a different approach to shopping for the furry little darlings, reviewed his shopping records, and discovered the following. The price of cat food has held steady at 89 cents per can. Despite feigning indifference, each of the seven cats nibbles their way through an average of one can per day, three hundred sixty five days a year. The price of gasoline has held constant at $3.50 per gallon and his pickup uses a gallon each way to the cat food store. The cost to hold a can of cat food is 10% of the unit price.
-Use the information in Scenario 9.9 to determine the annual setup cost if Geoff follows an EOQ policy to obtain cat food.
A) $112
B) $14
C) $28
D) $56

Question

Quizplus · Accepted Answer

The annual setup cost is calculated as the number of orders per year multiplied by the cost per order. Using the EOQ model, the number of orders per year is the annual demand divided by the EOQ. The cost per order is the round-trip gasoline cost, which is $7 ($3.50 each way). Given the EOQ formula and the provided data, the annual setup cost is $28.

Scenario 9.9 "Gollee Those Cats Sure Go Through a Lot of Food