Millennium Liquors is a wholesaler of sparkling wines. Its most popular product is the French Bete Noire, which is shipped directly from France. Weekly demand is 45 cases. Millennium purchases each case for $120, there is a $300 fixed cost for each order (independent of the quantity ordered), and its annual holding cost is 25 percent.

1. What order quantity minimizes Millennium’s annual ordering and holding costs?

2. If Millennium chooses to order 300 cases each time, what is the sum of its annual ordering and holding costs?

3. If Millennium chooses to order 100 cases each time, what is the sum of the ordering and holding costs incurred by each case sold?

4. If Millennium is restricted to ordering in multiples of 50 cases (e. g., 50, 100, 150, etc.), how many cases should it order to minimize its annual ordering and holding costs? 5. Millennium is offered a 5 percent discount if it purchases at least 1000 cases. If it decides to take advantage of this discount, what is the sum of its annual ordering and holding costs?

EOQ = 216 units, annual ordering cost and holding cost = $6840, annual ordering cost and holding cost = $8520

Explanation:

Annual demand D = 4 multiply 52 weeks = 2340 cases

Case cost C=$120

Order cost S = $300

Holding cost = 25% = 0.25 multiply with 120 = $30

a) At economic order quantity Q Millennium can minimize its annual ordering and holding cost

EOQ = 216.33 or 216 units

b) Q = 300 units

Annual ordering cost + annual holding cost =

=

= 2340 + 4500

= $6840

c) Q = 100

Annual ordering cost + annual holding cost =

=

= 7020 + 1500

= $8520

Costs occured by each case = 8520 divide 2340 = $3.64

d) We already said in a) the minimum annual ordering cost and holding cost will be at EOQ

So by ordering multiples of 50 cases near to EOQ we will minimize the annual ordering cost and holding cost.

So the order quantity to minimize the annual ordering cost and holding cost is 200 units

e) Q = 1000

Annual ordering cost + annual holding cost =

=

= 702 + 14250

Annual ordering cost + annual holding cost = $14952

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