Your company assembles five different models of a motor scooter that is sold in
ID: 2747624 • Letter: Y
Question
Your company assembles five different models of a motor scooter that is sold in specialty stores in the United States. The company uses the same engine for all five models. You have been given the assignment of choosing a supplier for these engines for the coming year. Due to the size of your warehouse and other administrative restrictions, you must order the engines in lot sizes of 1,250 each. Because of the unique characteristics of the engine, special tooling is needed during the manufacturing process which you agree to reimburse the supplier. Your assistant has obtained quotes from two reliable engine suppliers and you need to decide which to use. The following data has been collected:
Note: Assume that half of lot size is in inventory on average (1,250/2 = 625 units).
Your assistant has obtained the following freight rates from your carrier:
Note: Per ton-mile = 2,000 lbs. per mile
Calculate the total cost for each supplier. (Round your answer to the nearest dollar amount. Omit the "$" sign in your response.)
Which supplier would you select?
If you could move the lot size up to ship in truckload quantities, calculate the total cost for each supplier. (Round your answer to the nearest dollar amount. Omit the "$" sign in your response.)
Would your supplier selection change?
Your company assembles five different models of a motor scooter that is sold in specialty stores in the United States. The company uses the same engine for all five models. You have been given the assignment of choosing a supplier for these engines for the coming year. Due to the size of your warehouse and other administrative restrictions, you must order the engines in lot sizes of 1,250 each. Because of the unique characteristics of the engine, special tooling is needed during the manufacturing process which you agree to reimburse the supplier. Your assistant has obtained quotes from two reliable engine suppliers and you need to decide which to use. The following data has been collected:
Requirements (annual forecast) 20,000 units Weight per engine 30 pounds Order processing cost $135 per order Inventory carry cost 25 percent of the average value of inventory per yearNote: Assume that half of lot size is in inventory on average (1,250/2 = 625 units).
Two qualified suppliers have submitted the following quotations: Unit Price Supplier 1 Supplier 2 1 to 999 units/order $ 520.00 $ 516.00 1,000 to 2,999 units/order 513.00 508.00 3,000 + units/order 501.00 494.00 Tooling costs $ 20,000 $ 24,000 Distance 120 miles 100 milesYour assistant has obtained the following freight rates from your carrier:
Truckload (45,000 each load): $0.90 per ton-mile Less-than-truckload: $1.20 per ton-mileNote: Per ton-mile = 2,000 lbs. per mile
(a-1)Calculate the total cost for each supplier. (Round your answer to the nearest dollar amount. Omit the "$" sign in your response.)
(a-2)Which supplier would you select?
(b-1)If you could move the lot size up to ship in truckload quantities, calculate the total cost for each supplier. (Round your answer to the nearest dollar amount. Omit the "$" sign in your response.)
(b-2)Would your supplier selection change?
Explanation / Answer
Annual Demand 12000 Carrying Cost 20% of average invetory value Order processing cost per order 125 Shipping cost (Less than truck load) 1.2 per ton-mile Assumption - 1250 engiens are ordered per month Based on this Information- Supplier 1 Supplier 2 Unit Price 513 508 Engine cost per month 641250 635000 Inventory carrying cost per month 64125 63500 Ordering cost per month 135 135 Total Cost per month 705510 698635 Total cost 8466120 8383620 Since each engine weighs 30 pounds, total weight of 1250 engines is 37500 pounds. Since the full truck load is 45000 tons, 37500 is less than full truck load. So less than truck load rates are considered for shipping. Supplier 1 Supplier 2 Distance 120 100 Total Weight per order (tons) 37500 37500 Ton-Miles 4500000 3750000 Total transportation cost per order 5400000 4500000 Total transportation cost 64800000 54000000 Tooling Cost 2000 24000 Total Ownership Cost 73268120 62407620 Full truckload Quantity(Order Quantity) 1500 Carrying Cost 25% of average invetory value Order processing cost per order 135 Shipping cost (Full truck load) 0.9 per ton-mile Total No. of orders 7 Now, 1818 as the order quantity. Supplier 1 Supplier 2 Unit Price 513 508 Engine Cost 6156000 6096000 Inventory carrying cost 0 0 Inventory Ordering cost 0 0 Total Cost 6156513 6096508 Supplier 1 Supplier 2 Distance 120 100 Total Weight per order (tons) 40000 40000 Ton-Miles 4800000 4000000 Total transportation cost per order 0 0 Total transportation cost 0 0 Tooling Cost 22000 20000 Total Ownership Cost 6178513 6116508 Hence truckload quantities doesn’t make any economic change as we are mataining the same supplier 1 Based on the total cost of ownership, supplier 2 should be selected. Total Cost of ownership is as mentioned belw. Please refer worksheet Order size 1250 for calculations. supplier 1 Supplier 2 Total ownership Cost 46223500 38275100 2 By increasing the order quantity to full truck load quantity of 1818, supplier 2 should be selected. Hence supplier 2 is maintained. Total Cost of ownership is as mentioned belw. Please refer worksheet Order size - Full Truck Load Qu for calculations. supplier 1 Supplier 2 Total ownership Cost 34623375 28994973
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