6-Victory

Victory is a retailer, specializing in vitamin supplements and health foods claimed to enhance performance. One of the products purchased by Victory for resale is a performance enhancing vitamin drink called 'Buzz'.

Victory sells a fixed quantity of 200 bottles of Buzz per week. The estimated storage costs for a bottle of Buzz are $2.00 per annum per bottle.

Delivery from Victory's existing supplier takes two weeks and the purchase price per bottle delivered is

$20. The current supplier charges a fixed $75 order processing charge for each order, regardless of the order size.

Victory has recently been approached by another supplier of Buzz with the following offer:

i. The cost to Victory per bottle will be $19 each.

ii. There will be a fixed order processing charge of $250 regardless of order size.

iii. Delivery time will be one week.

iv. Victory estimates that due to packaging differences, the storage cost per bottle will be $1.80 per annum per bottle.

Note

The economic order quantity Q, which will minimize costs, is:

Q= 2C0D

Ch

Where C0 = ThecostofmakingoneorderD = Annualdemand

Ch =Theholding costperunitperannum

Required

a) Assuming Victory continues to purchase from the existing supplier, calculate:

i. Economic order quantity

ii. Reorder level

iii. Total cost of stocking Buzz for one year to the nearest $

(i)Calculate the economic order quantity if Victory changes to the new supplier and determine if it would be financially viable to change to this new supplier.

(ii)Discuss TWO limitations of the above calculations and briefly describe THREE other non- financial factors to be taken into account before a final decision is made. 426