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Answer to Question #42800 in Other Economics for Malik

Question #42800

Question 2.
A pharmaceutical company uses an instable chemical compound that must be kept in an environment where both temperature and humidity can be controlled. The company uses 800 pounds per month of the chemical, estimates the holding cost to be 50% of the purchase price, and estimates order costs to be $50 per order. The cost schedules of two suppliers are as follows:

Vendor A
Quantity Price/lb ($)
1-499 17
500-999 16.75
1000 + 16.50

Vendor B
Quantity Price/lb ($)
1-399 17.10
400-799 16.85
800-1199 16.60
1200 + 16.25



a) What is the EOQ for each supplier?
b) What quantity should be ordered, and which supplier should be used?
c) What is the total cost for the economic quantity ordered?
d) What factor(s) should be considered besides total cost?
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