Dropdown #1 options: Carpenter, Baker, Abbott Dropdown #2 options: 10,000, 20,00
ID: 338899 • Letter: D
Question
Dropdown #1 options:
Carpenter, Baker, Abbott
Dropdown #2 options:
10,000, 20,000
Horizon Cellular manufactures cell phones for exclusive use in its communication network. Management must select a circuit board supplier for a new phone soon to be introduced to the market. The annual requirements (D) are 40,000 units and Horizon's plant operates 250 days per year. The data for three suppliers are in the following table Annual Freight Costs Shipping Quantity (Q) Price/Unit Annual Holding Lead Time Annual Supplier Abbott Baker Carpenter Cost/Unit (H) (L) (days Administrative Cost 10,000 $11,000 $10,000 $7,500 $12,000 $10,000 20,000 $9,000 $28 $29 $31 $5.60 $5.80 $6.20 $11,000 $10,000 $12,000 5 Which supplier and shipping quantity will provide the lowest total cost for Horizon Cellular? Using Horizon Cellular of S (Enter your response as an integer.) Vand a shipping quantity of Vunits is the lowest cost alternative, with annual total costs toExplanation / Answer
Solution:
Annual total costs is calculated as;
Annual total cost = pD + Freight costs + [(Q/2 + dL) x H] + Administrative cost
where;
p = price/unit
D = Annual demand
Q = Quantity
d = daily demand
L = lead time (in days)
H = Annual holding cost
Annual demand, D = 40,000 units
Number of days = 250 days per year
Daily demand, d = 40,000 / 250 = 160 units
The total annual cost of each supplier is calculated as below:
Annual total cost = pD + Freight costs + [(Q/2 + dL) x H] + Administrative cost
1) Abbott: (Q = 10,000 units)
Annual total cost = ($28 x 40,000) + $11,000 + [(10000/2 + {160 x 7}) x $5.60] + $11,000
Annual total cost = $1,176,272
2) Abbott: (Q = 20,000 units)
Annual total cost = ($28 x 40,000) + $9,000 + [(20000/2 + {160 x 7}) x $5.60] + $11,000
Annual total cost = $1,202,272
3) Baker: (Q = 10,000 units)
Annual total cost = ($29 x 40,000) + $10,000 + [(10000/2 + {160 x 8}) x $5.80] + $10,000
Annual total cost = $1,216,424
4) Baker: (Q = 20,000 units)
Annual total cost = ($29 x 40,000) + $7,500 + [(20000/2 + {160 x 8}) x $5.80] + $10,000
Annual total cost = $1,242,924
5) Carpenter: (Q = 10,000 units)
Annual total cost = ($31 x 40,000) + $12,000 + [(10000/2 + {160 x 5}) x $6.20] + $12,000
Annual total cost = $1,299,960
6) Carpenter: (Q = 20,000 units)
Annual total cost = ($31 x 40,000) + $10,000 + [(20000/2 + {160 x 5}) x $6.20] + $12,000
Annual total cost = $1,328,960
Answer: Using Abbott and a shipping quantity of 10,000 units is the lowest cost alternative, with annual total costs to Horizon Cellular of $1,176,272.
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