Homework 3:

A car dealer pays $17,985 for each car purchased. The annual holding rate is estimated at 25%, and the ordering cost is $7,558. The dealer is selling an average of 516 cars a year.

3. Note the new information:

The dealership can only park 45 cars in its small parking lot. Therefore, if needed, it will lease a nearby bigger parking lot, and use it to park access inventory.

The dealer can get a discount of $1000 on the car's price if his order size is 275 cars or more.

3-1: If the dealer rejects the discount offer, what will be his order size?

a. 42 cars

b. 43 cars

c. 45 cars

d. None of the above.

3-2: If the dealer decides to accept the offer to order 275 cars, he uses the leased parking lot as a "Warehouse", and each time a car is sold from the small parking lot, he transfers a car from the leased large lot. Therefore, in his own lot, there are all the time 45 cars on display, but the inventory in the large lot is gradually depleting. What is the average inventory the dealership carry in the leased parking lot?

a. 275 cars

b. 275/2 cars

c. 38+(275/2)

d. 237/2

3-3 A car kept in the leased parking lot costs the dealer additional $250 in holding cost (which increases Ch). Calculate the annual total cost if the dealer decides to accept the "275" deal. Break down the costs: Annual Ordering cost, Annual Holding cost in the small parking lot, Annual Holding cost in the leased parking lot, Annual Purchasing cost. (not multiple choice, show work)