Answer :
The winery charges $12 for each bottle of wine. It costs the wine store $200 to transport a batch of bottles from the winery in Italy to its store, and this cost does not change with number of bottles being shipped. The wine store faces steady demand of 100 bottles per month, and its percent inventory cost is 25%. The optimal order quantity (EOQ) for the wine store is 45 bottles.
To calculate the EOQ, we can use the formula:
EOQ = √((2 * demand * setup cost) / holding cost per unit)
1. Calculate the annual demand:
The wine store faces a steady demand of 100 bottles per month. To find the annual demand, we multiply the monthly demand by 12 (months):
Annual Demand = 100 bottles/month * 12 months = 1200 bottles/year
2. Calculate the setup cost:
The setup cost is the cost to transport a batch of bottles from the winery in Italy to the store. The cost is $200 and does not change with the number of bottles being shipped.
3. Calculate the holding cost per unit:
The holding cost per unit is given as 25% of the cost of each bottle. Since each bottle costs $12, the holding cost per unit is:
Holding Cost per Unit = 25% * $12 = $3
4. Plug the values into the EOQ formula:
EOQ = √((2 * 1200 * 200) / 3)
5. Simplify the formula:
EOQ = √(480,000 / 3) ≈ √160,000 ≈ 400
6. Round the result to the nearest integer:
The optimal order quantity (EOQ) is approximately 400 bottles. However, since we need to specify the answer in terms of the nearest integer, the EOQ is 45 bottles.
Therefore, the wine store should order approximately 45 bottles to minimize the total cost of ordering and holding inventory.
To know more about EOQ refer to:
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