) A firm wants a buyer adjust their purchasing amount and frequency by changing the price...

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Operations Management

) A firm wants a buyer adjust their purchasing amount andfrequency by changing the price it charges so that they purchasethe target times per year. For example, if the firm purchases 10times a year a firm might want it to purchase 5 times yearlyinstead. The firm recognizes that an incentive will have to beoffered to do this and has set the incentive as the amount thepurchaser would save in total (based on total material cost as usedin inventory analysis) from the current cost to the purchaser. Dataon the customer is given below as well as the target savingsidentified the firm thinks is required to get the purchaser tochange their buying pattern.
Current Order Amt
Order per Year
Current Price
Order Cost
Holding %
Target Orders/ yr
Incentive Savings
200
17
125.00
400.00
40.0%
4
4,000.00
NOTE: The customer may not be applying EOQ to its currentordering quantity and frequency.
a. What is the total annual cost to the customer of the currentordering policy?
b. What is the highest price the seller can offer the customerso the customer orders 4 times yearly and meets the targetedsavings?

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4.5 Ratings (695 Votes)

ANSWER given data Q 200 S 400 P 125 N 17 Holding cost year R 40 annual demand D Q N 200 17 3400 Total annual cost D P N S Q 2 R P 3400135 17 400 200 See Answer

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Current Order Amt	Order per Year	Current Price	Order Cost	Holding %	Target Orders/ yr	Incentive Savings
200	17	125.00	400.00	40.0%	4	4,000.00