Sotero, Maria Bernaditte L.

BSBA

Binny Foods manufactures spicy baked potato chips. The baked chips manufacturing
process uses three (3) ingredients (items) – potatoes, chili powder, and salt. Binny’s purchases
these three (3) items from the same supplier. The inventory attributes for these three (3) items
are shown in the table below. The supplier offers a discount of 5% on any individual item that
has an order size of 750 kg or more. Compute the EOQ for the three (3) items. The ordering
cost is ₱20 per order, and the carrying rate is 15% per year.

Item name Annual Unit price

demand
Potatoes 5,000 kg ₱4 per kg
Chili powder 800 kg ₱40 per kg
Salt 1,200 kg ₱0.5 per
kg

A. EOQ and TC with original values

Potatoes
Q∗¿
√ 2 ×5000 ×20 = √ 200,000 =√ 333,333=577.35 kg
0.15 ×4 0.6
Tc= ( 800
577.35
× 20 +) 577.35
2
× 0.15 × 4+(5,000× 4 )
¿ ( 8.66 × 20 ) + ( 288.68+0.6 )+ 20 ,00 0
= 173.2+173.208+20,000
= 20,345.408
Chili powder

Q∗¿ √
2 ×8 00 ×20 √ 32 ,000
= =√ 5,333.33=73.05 kg
0.15 ×4 0 6
Tc= ( 800
73.03 )
× 20 + (73.03 /2× 0.15 ×40 )+(800 × 4 0)
¿ ( 10.95 ×20 )+ (36.515+ 6 ) +32 , 00 0
= 219+219.09+32,000
= 32,438.09

Salt

Q∗¿
√ 2 ×1,200 ×20 = √ 48 , 000 =√ 640,000=800 kg
0.15 ×0.5 6 0.075
Tc= (1,200
800 )
× 20 + ( 800/2× 0.15 ×0.5 )+(1,200 ×0.5)
 ¿ ( 1 .5× 20 ) + ( 400+ 0.075 ) +6 0 0
= 30+30+600
= 660

B. EOQ and TC with a discount (5% discount for each individual item that has an order size of
750 kg or more)

Potatoes

Q∗¿
√ 2 ×5,000 ×20 = √ 200 , 000 =√350,877=592.35 kg
0.15 ×3.8 0.57
Tc= (5 , 00 0
75 0 )
×20 + ( 750 /2 × 0.15× 3.8 ) +(8 00× 3.8)
¿ ( 6.67 ×20 )+ ( 375+0.57 )+19 , 0 0 0
= 133.4+213.75+19,000
= 19,347.15

Chili Powder

Q∗¿ √
2 ×800 ×20 √ 32,000
= =√ 5 , 614.04=73. 93 kg
0.15 ×38 5.7
Tc= ( 800
7 50 )
× 20 + (7 50 /2× 0.15× 38 ) +(800 ×38)
¿ ( 1 .07 ×20 ) + ( 3 75+5.7 )+ 3 0 , 4 0 0
= 21.4+2,137.5+30,400
= 32,558.9

Salt

Q∗¿
√ 2 ×1,200 ×20 = √ 48,000 = √6 76 , 0 56.34=8 22.23 kg
0.15 ×0. 475 0.071
Tc= ( 1,200
800 )
× 20 + ( 800/2× 0.15 ×0. 475 )+(1,200 ×0. 475)
¿ ( 1. 6 ×20 ) + ( 375+ 0.07 125 ) +57 0
= 32+26.71875+570
= 628.719

C. Order size decision

Potatoes
Since the TC for the discount rate is lower than the standard market pricing, I believe that
procuring 750 kg of potatoes will benefit Binny foods manufacturers. Binny foods
manufacturers were able to benefit from a 5% discount for each individual item with an
order amount of 750 kg or more in this scenario.
Chili powder
Since the TC for the discounted rate is greater than the ordinary market pricing, I believe
that the 5% discount is not advantageous to the Benny Foods makers in obtaining 750 kg of
chili powder. As a result, for each individual item with an order quantity of 750 kg or more,
they should acquire at the usual market price rather than the discount amount.

Salt
Since the TC for the discounted rate is lower than the standard market pricing, I infer that
obtaining a 5% discount for each individual item with an order amount of 750 kg or more is
profitable for the benny foods makers.