Comel Pet Store is a large pet store located in Kota Bharu. Although the store specializes in cats, it also sells fish, turtle, and bird supplies. Smart Cat, a food for cats, cost Comel Pet RM7 each. There is an annual demand for 6,000 Smart Cat. The manager, Yah Kuchai, has determined that the ordering cost is RM20 per order and the carrying cost, as a percentage of unit cost, is 15%. Comel Pet is now considering a new supplier of Smart Cat. Each pack would cost only RM6.65, but, in order to get this discount, Comel Pet would have to buy shipments of 3,000 at a time. Should Comel Pet use the new supplier and take this discount for quantity buying?

Question

Comel Pet Store is a large pet store located in Kota Bharu. Although the store specializes in cats, it also sells fish, turtle, and bird supplies. Smart Cat, a food for cats, cost Comel Pet RM7 each. There is an annual demand for 6,000 Smart Cat. The manager, Yah Kuchai, has determined that the ordering cost is RM20 per order and the carrying cost, as a percentage of unit cost, is 15%. Comel Pet is now considering a new supplier of Smart Cat. Each pack would cost only RM6.65, but, in order to get this discount, Comel Pet would have to buy shipments of 3,000 at a time. Should Comel Pet use the new supplier and take this discount for quantity buying?

Answer 1

please help me, I not really understand how to solve this question.

Answer 2

To determine whether Comel Pet Store should use the new supplier and take advantage of the discount for quantity buying, we need to calculate the total annual cost of ordering and carrying inventory for both the existing supplier and the new supplier.

Let's break down the costs for each supplier:

1. Existing Supplier:
- Cost per unit of Smart Cat: RM7
- Annual demand for Smart Cat: 6,000 units
- Ordering cost: RM20 per order
- Carrying cost: 15% of unit cost

Calculation for the existing supplier:
- Total number of orders per year = Annual demand / Order quantity per order
- Total number of orders per year = 6,000 / Order quantity per order (unknown)
- Average inventory level = Order quantity per order / 2
- Average inventory level = Order quantity per order (unknown) / 2

- Total cost for ordering = Total number of orders per year * Ordering cost
- Total cost for carrying inventory = Average inventory level * Unit cost * Carrying cost

2. New Supplier:
- Cost per unit of Smart Cat: RM6.65
- Annual demand for Smart Cat: 6,000 units
- Order quantity per order: 3,000 units
- Ordering cost: RM20 per order
- Carrying cost: 15% of unit cost

Calculation for the new supplier:
- Total number of orders per year = Annual demand / Order quantity per order
- Total number of orders per year = 6,000 / 3,000
- Average inventory level = Order quantity per order / 2
- Average inventory level = 3,000 / 2

- Total cost for ordering = Total number of orders per year * Ordering cost
- Total cost for carrying inventory = Average inventory level * Unit cost * Carrying cost

Now, let's calculate the total costs for each supplier:

1. Existing Supplier:
- Total cost for ordering: Total number of orders per year * Ordering cost
- Total cost for carrying inventory: Average inventory level * Unit cost * Carrying cost
- Total annual cost = Total cost for ordering + Total cost for carrying inventory

2. New Supplier:
- Total cost for ordering: Total number of orders per year * Ordering cost
- Total cost for carrying inventory: Average inventory level * Unit cost * Carrying cost
- Total annual cost = Total cost for ordering + Total cost for carrying inventory

Finally, we compare the total annual costs for both suppliers. If the total cost for the new supplier is lower than the total cost for the existing supplier, Comel Pet Store should use the new supplier and take advantage of the discount for quantity buying. Otherwise, it should continue with the existing supplier.