Sarah’s Organic Soap Company makes organic liquid soap. One of the raw materials for her soaps is organic palm oil. She needs 500 kgs of palm oil per day on average. The supplier charges a $55 delivery fee per order (which is independent of the order size) and $5.5 per kg. Sarah’s annual holding cost is 15%. Assume she operates and sells 5 days per week, 52 weeks per year.
1. If Sarah orders 8100 kgs with each order, what would be sum of ordering and holding costs per kg sold? per kg
2. Sarah’s supplier is willing to sell her palm oil at a 5% discount if she purchases 15,000 kgs at a time. If she were to purchase 15,000 kgs per order what would be her annual sum of ordering and holding costs?