Scenario 11.4 - Caffeine and Sugar
With a fixed cost of $100 per order,Nathan decided it was vital to get his money's worth.His monthly demand for energy drinks was 10,000 bottles and holding cost was estimated at 20% of unit cost.The mail order company offered him a couple of possibilities - he could pay $4.00 per bottle for orders of up to 10,000 bottles.After that threshold,he would pay only $3.98 per bottle,and if he ordered 20,00 or more bottles in an order,he would pay only $3.96 per bottle.
-What is the best order quantity for Nathan to use?
A)5,477
B)5,505
C)10,000
D)5,491

Question

Quizplus · Accepted Answer

The best order quantity can be determined using the Economic Order Quantity (EOQ) formula: EOQ = sqrt((2DS)/H), where D is the demand, S is the ordering cost, and H is the holding cost per unit per period. Given D = 10,000 bottles, S = $100, and H = 20% of unit cost ($4.00 * 20% = $0.80), EOQ = sqrt((2*10,000*100)/0.80) = 5,477. However, given the specific price breaks and the need to find the most cost-effective order quantity considering these breaks, the correct calculation must account for the best price per unit while minimizing total costs, including ordering and holding costs. The closest option to the calculated EOQ that also considers the price breaks and total cost minimization is 5,491.