80.2K

Verified Solution

Link Copied!

3. Evaluation of inventory costs and application of the EOQ model Consider the case of Virginia Hydroponics Company: Virginia Hydroponics Company is a wholesaler of seeds and plant nursery products. It customarily selis Bessie's Best Cow Manure, an excellent fertilizer for spring gardens, which is ordered from Bessle's Dairy, a local dairy farm. Bessie's Best is sold in 25-and 50 -pound bags. The 25-pound bags are generally purchased by homeowners and others tending personal gardens, while the larger bags are usually purchased by landscaping firms and commercial growers. Virginia is open all year long and sells the smaller bags of Bessie's Best for $4 each and the larger bags for $6 each. It currently is out of Bessie's Best and is preparing to order the first shipment of the season. A revlew of last year's sales records shows that Virginia placed 8 orders and sold 9,00025 -pound bags and 156,250 50-pound bags. Virginia paid $20 for each order placed. Because the manure is transported and stored in bags stacked on shrink-wrapped pallets, so the threat of theft, obsolescence, and decay is very low, the carrying cost of the fertilizer is $1.00 per bag. In addition to handling and storage costs, carrying costs aiso include property and liablity insurance premlums, tax expenses, and the opportunity cost on the funds invested in the inventory, Yesterday's comversation Another dairy farm, Gage's Guernsey Farm, has approached Virginia Hydroponics Company with a competing offer. Gage's offer specifies that not only will it beat Bessie's best price by $1 per bag, but it will also offer advice on how Virginia can minimize the total inventory costs associated with their fertilizer purchases. In addition, the cost of placing an order will decrease to $10 per order. A chemical anialysis of samples of Bessie's Best and Gage's Greatest has indicated that the quality of two fertilizers issidentical, You have been asked by the owner of Virginia'svirginia to apply the economic ordering quantity (EOQ) model to Virginia's data and compare the two offers. Complete the following table for Virginia's inventory of 50-pound bags. Make sure to round your answers up or down to the next whole bag, order, or dollar, as appropriate, and assume that sales are uniformly distributed throughout the year

Answer & Explanation Solved by verified expert

See Answer