1. Walmart sells 30,000 units of LG TVs every month. Each TV costs $350 and Walmart has a holding cost of 20 percent. The fixed cost for each order Walmart places with LG is $4,000. What is the optimal order size for Walmart? What is the annual holding cost of the optimal policy? How many orders per year does Walmart place? What is the annual ordering cost?

Question

Alaina Carlson

Business

17 December, 08:12

1. Walmart sells 30,000 units of LG TVs every month. Each TV costs $350 and Walmart has a holding cost of 20 percent. The fixed cost for each order Walmart places with LG is $4,000. What is the optimal order size for Walmart? What is the annual holding cost of the optimal policy? How many orders per year does Walmart place? What is the annual ordering cost?

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Answers (1)

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Medina · Answer 1

6414

56

224,000

Explanation:

Number of units sold per month = 30,000

Annual demand (A) = 30000 * 12 = 360000

Cost Price per unit TV (U) = $350

Holding cost % (P) = 20%

Holding cost $ (H) = ?

Fixed cost per order placed (C) = $4,000

H = U * P = $350 * 0.2 = $70

A.) Optimal order size:

√ (2 * A * C) / H

√ (2 * 360000 * 4000) / 70

√ 2880000000/70

√ 41142857.1428

= 6414

Number of orders placed per year:

(Annual quantity demanded / optimal order size) = 360,000 / 6414 = 56

Annual ordering cost = number of orders placed per year * cost per order

56 * $4000 = $224,000