2. Monthly Demand 10,000 kg
Unit Cost (Per Kg.) 3.92 real
Fixed Order Cost (per lot) 100 real
Annual Order 120000 kg
Holding Cost per unit 0.2
Monthly Demand 10,000 kg
Unit Cost (Per Kg.) 4 real
Fixed Order Cost (per lot) 100 real
Annual Order 120000 kg
Holding Cost per unit 0.2
Optimal order size for the supermarket 5533 Optimal order size for the supermarket 5477
Calculation of total profit
After Reduced Cost
Total Revenue 470400
annual cost of material 300000
Holding cost annualized 6875
order cost annualized 17455
Profit 146070
Total Revenue 480000
annual cost of material 300000
Holding cost annualized 1369
order cost annualized 87636
Profit 90995
Total Revenue 470400
annual cost of material 300000
Holding cost annualized 6875
order cost annualized 1745.45455
Profit 161780
Total Revenue 480000
annual cost of material 300000
Holding cost annualized 1369
order cost annualized 8763.561
Profit 169867
WITH DISCOUNT WITHOUT DISCOUNT
Appendix
1. With discounted scheme at lot sizes of 27,500
Kg, KAR foods have better profits(60% more)
(Difference = 55,063 real)
2. In comparison to the non-discounted, the
discount scheme forecasts worsening results
with the increased fixed cost. As a result, KAR
Food should examine their discount rules as
soon as possible in order to achieve a profit
table. If required, cancel discounts.
The following are the disadvantages of maintaining
the discount scheme at the new xed cost of 400 real:
• In order to take advantage of the discounting plan,
consumers will purchase larger quantities, and
KARfoods will suffer a 20% holding fee on such
orders. As a result, the overall cost would not
decrease as expected.
• The firm would lose 2% on every order of 27,500
kg or more and would have to pay a 20% holding
cost.
• They would not be able to fully utilise the routing
software, which allows them to arrange deliveries
to several clients on a single vehicle.
3. Suggestions in upcoming meeting –
• Cooperate with retailers
• Develop market of small & medium-sized
supermarket
• Reduce discount value and discount volume
• Consider volume discounts
• If there is a risk that retailer may not take this offer ,
then mandate MOQ
