Question

Company a purchases cases of fertilizer for its lawn-care business from a supplier who charges company a $30 per order and $50 per case. each case consists of five bags of fertilizer and the order size must be an integer multiple of five bags. company a needs 2000 bags of fertilizer a year. company a's annual holding costs are 30%. what would be the order quantity that minimizes annual ordering and holding costs?

Answer 1

Holding cost per case per year = $50 × 30% = $15.
Annual demand of the product = 2000 bags/year
bags per 5 bags a case = 400 cases.

K=$30
R= 2000 bags/year
h= $50 x 30% = $15

that minimizes annual ordering and holding costs
= squareRoot(2KR/h)
= squareRoot((2x30x400)/15)
= 40