1. Assume that original price of the transformer was $500 per unit. Was Gentle electric initially operating at the reorder point? 2. What is Economic Order Quantity when no discount was offered? 3. When Gentle Electric was offered discount, which cost were affected? What happened to Economic Order Quantity? 4. How many order requisitions per year should GE sent? 5. What is the expected total landed cost for transformers based on your suggested ordering policy? 6. What is major learning from this case? Total Landed Cost Analysis - Gentle Electric Demand Holding cost Cost of unloading/unit Fixed cost Outside warehousing cost 1200 20% $0.50 $25 $12/unit/year Cost of units with incremental discount upto 100 upto 200 over 200 500 Q 50000 + 490x(Q-100) 50000+49000+475x(Q-200) Cost/unit with incremental discount i.e.C(Q)/Q 500 upto 100 upto 200 over 200 (1000/Q) + 490 (4000/Q) + 475 Transportation rates Full car load $6 per 100lbs LCL $10 per 100lbs $30/unit and $3000 per car load $50 per unit Holiding cost estimated on average inventory i.e. Q/2 @ 20% of cost of inventory (estimate it at 20% of the cost of half the order quantity) Additional warehousing cost Cost of material Q Number of car loads Full Loads Transportati Unloading on cost cost CIQQ Ordering cost Holding cost Requisitions per year LCL(Units) Total Cost Total Costs 1.20 1.00 0.80 0.60 0.40 0.20 0.00 0.2 0.4 1.2 Total. 1. Assume that original price of the transformer was $500 per unit. Was Gentle electric initially operating at the reorder point? 2. What is Economic Order Quantity when no discount was offered? 3. When Gentle Electric was offered discount, which cost were affected? What happened to Economic Order Quantity? 4. How many order requisitions per year should GE sent? 5. What is the expected total landed cost for transformers based on your suggested ordering policy? 6. What is major learning from this case? Total Landed Cost Analysis - Gentle Electric Demand Holding cost Cost of unloading/unit Fixed cost Outside warehousing cost 1200 20% $0.50 $25 $12/unit/year Cost of units with incremental discount upto 100 upto 200 over 200 500 Q 50000 + 490x(Q-100) 50000+49000+475x(Q-200) Cost/unit with incremental discount i.e.C(Q)/Q 500 upto 100 upto 200 over 200 (1000/Q) + 490 (4000/Q) + 475 Transportation rates Full car load $6 per 100lbs LCL $10 per 100lbs $30/unit and $3000 per car load $50 per unit Holiding cost estimated on average inventory i.e. Q/2 @ 20% of cost of inventory (estimate it at 20% of the cost of half the order quantity) Additional warehousing cost Cost of material Q Number of car loads Full Loads Transportati Unloading on cost cost CIQQ Ordering cost Holding cost Requisitions per year LCL(Units) Total Cost Total Costs 1.20 1.00 0.80 0.60 0.40 0.20 0.00 0.2 0.4 1.2 Total
