Question

Garden Variety Flower Shop uses 930 clay pots a month. The pots are purchased at $3.90 each. Annual carrying costs per pot are estimated to be 10 percent of cost, and ordering costs are $10 per order. The manager has been using an order size of 2,000 flower pots.

Answer 1

A.$151

B.38%

Step-by-step explanation:

A. Calculation for What additional annual cost is the shop incurring by staying with this order size

First step is to calculate EOQ

Using this formula

EOQ = Square root(2*Annual demand*ordering cost/Holding cost per unit per year)

Let plug in the formula

EOQ =Square root (2*12*930*10/.39)

EOQ = 757 pots

Second Step will be to calculate the Annual cost when EOQ is used

Annual cost( EOQ )= (12*930/757)*10 + (757/2)*.39

Annual cost( EOQ )= $295

Third step is to calculate the Annual cost when 2000 pot is ordered

Annual cost ( 2000 pot is ordered) = (12*930/2000)*10 + (2000/2)*.39

Annual cost ( 2000 pot is ordered) = $445.8

Last step is to calculate the Additional annual cost

Additional annual cost = 445.8 - 295.04

Additional annual cost = $150.76

Additional annual cost=$151 (Approximately)

Therefore the Additional annual cost will be $151

B. Calculation for what benefit would using the optimal order quantity yield

About % of the storage space would be needed

= 757/2000

About % of the storage space would be needed

= 37.85% or 38%

Therefore the About % of the storage space would be needed is 38%