Your boss is interested in web-based ordering (WBO), a new technology application that facilitates easier communication between supply chain partners. She believes that adopting WBO will reduce the cost of

$1,042

Explanation:

Calculation for How much is your boss implying that she is willing to spend on the WBOsystem on an annual basis

In order for us to know How much the boss implying that she is willing to spend on annual basis we have to calculate (EOQ) which full meaning is Economic order quantity Before and After change

BEFORE CHANGE

First step is to calculate Q

Using this formula

O=√2*D*S/H

Where,

D represent Annual Quantity Demanded

S represent Ordering Cost

H represent Holding Cost

Let plug in the formula

Q=√2*(1,000units* 12 months)*$15*$5

Q=√(2 * 12,000 * $15 / $5)

Q= 268

Second step is to calculate the Annual Order Cost

Annual Order Cost = 12,000/268 * $15

Annual Order Cost =44.78*$15

Annual Order Cost =$672

Third step is to calculate the Annual Holding Cost

Annual Holding Cost = 268/2 * $5

Annual Holding Cost =$670

Fourth Step is to calculate Total Cost

Total Cost = $672 + $670

Total Cost= $1,342

Calculation for the Economic order quantity (EOQ) After change

AFTER CHANGE

First step is to calculate Q

Using this formula

Q=√2*D*S/H

Where,

D represent Annual Quantity Demanded

S represent Ordering Cost

H represent Holding Cost

Let plug in the formula

Q=√2*(1,000units* 12 months)*$0.75*$5

Q=√(2 * 12,000 * $0.75 / $5)

Q=60

Second step is to calculate Annual Order Cost

Annual Order Cost = 12,000/60 * $0.75

Annual Order Cost=$150

Third step is to calculate Annual Holding Cost

Annual Holding Cost = 60/2 * $5

Annual Holding Cost =$150

Fourth Step is to calculate Total Cost

Total Cost = $150 + $150

Total Cost = $300

Now let calculate How much is your boss is willing to spend on the WBOsystem on an annual basis using this formula

Amount to spend on WBOsystem =Total Cost before change-Total Cost after change

Let plug in the formula

Amount to spend on WBOsystem=$1,342-$300

Amount to spend on WBOsystem=$1,042 on annual basis

Therefore the amount your boss implying that she is willing to spend on the WBOsystem on an annual basis is $1,042

how does that happen,where u steel points