Question
A bakery buys sugar from a big distributor to use in baking cakes. Typically, they use 3663 bags of sugar in a year. The price
A bakery buys sugar from a big distributor to use in baking cakes. Typically, they use 3663 bags of sugar in a year. The price of sugar is typically $14 per bag. The cost to the bakery for placing an order is $26, and the annual carrying cost is $17 per bag. The distributor has offered the bakery the following volume discount schedule:
Order Size | Discount rate on the original price |
1--449 | 0 percent |
450--799 | 5 percent |
more than 800 | 10 percent |
We are trying to find how many bags of sugar should the store order, whenever they place a new order of sugar. Assume 364 days a year and 52 weeks a year. IMPORTANT: Note, the discounts off of original price are reported. You need to calculate the actual prices.
If we ignore the discounts, how many bags of sugar should we order?
- Fill in the blanks
Order Quantity | Unit Price to Pay | Total Annual Inventory Related Cost |
Quantity from EOQ model |
|
|
Enough to get 5 percent discount |
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|
Enough to get 10 percent discount |
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|
- Based on this quantity discount information, how may bags of sugar should the store order?
- How often (in "days") should the bakery order?
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