a.

) The optimal order quantity

Q = units per order : $10

D = Demand : 8,000
S = Order cost per order : $30
H = Holding cost : $3

Demand : 5000
Setup cost : $25
Holding cost : 25%
Price per unit : lowest ($6); highest ($6.40)

 Lowest possible price of $6.00 per box

Q=
¿

√ 2 DS
IP

Q=
¿
√ 2 DS
IP
=
√2(5,000)(25)
(.25)(6)
=
√
250,000
1.5
=√ 166,666.67 = 408.25 or 408 boxes

The 408 is less than 3,000 thus, EOQ is not feasible for the $6 price. While, having $6.40
price is way much better for order quantities are 395 boxes and having a 3,000 price – break
quantity for the lower price of $6 is feasible.

Computing the total cost for both possible best order quantities:
 D Q
TC = S + IP + PD
Q 2

 Under the price of $6.40

5000 395
T C 395 = ( $ 25)+ (0.25)( $ 6.40)+($ 6.40)(5,000)
395 2

= $316 + $316 + $32,000

= $32,632

By comparing the two total costs above, $32,292 is much cheaper thus it is
preferable to choose the new supplier. But, by choosing it, Whole Nature Foods must limit
their supply as it seems that large amount can not be possible with it. Maybe by having large
amounts, it is way better to choose their current supplier.

 Vendor 2

At $17.10

Q=
¿

√ 0.5(17.10) √
2 ( 9600 ) ( 50 )
¿
960,000
8.55
¿ √ 112280.7018 = 335.08 or 335 units

At $16.85

Q¿ =
√ 0.5(16.85) √
2 ( 9600 ) ( 50 )
¿
960,000
8.425
¿ √ 113946.5875 = 337.56 or 338 units

At $16.60

Q¿ =
√ 0.5(16.60) √
2 ( 9600 ) ( 50 )
¿
960,000
8.3
¿ √ 115662.6506 = 340.10 or 340 units

At $16.25
 Q¿ =
√ 0.5(16.25) √
2 ( 9600 ) ( 50 )
¿
960,000
8.125
¿ √ 118153.8462 = 343.74 or 344 units

a.) What quantity should be ordered, and which supplier should be used?

Among all the computations above, Vendor 2 best option to place order with an order
size of 1,200 quantity.

b.) What is the total cost for the most economic order size?

Demand : 9600

c.) What factor(s) should be considered besides total cost?