b) which supplier should be used? c) what is the optimal order quantity? d) tota
ID: 346691 • Letter: B
Question
b) which supplier should be used?
c) what is the optimal order quantity?
d) total cost?
M. P. VanOyen Manufacturing has gone out on bid for a regulator component. Expected demand is 725 units per month. The item can be purchased from either Allen Manufacturing or Baker Manufacturing. Their price lists are shown in the table. Ordering cost is $55, and annual holding cost per unit is $6 Allen Mfq Baker Mfg Quantity 1-499 500-999 1000+ Quantity 1-399 400-799 800+ Unit Price $16.10 15.60 15.10 Unit Price $16.00 15.50 15.00 a) What is the economic order quantity if price is not a consideration? 399 units (round your response to the nearest whole number) b) Which supplier, based on all options with regard to discounts, should be used?Explanation / Answer
Annual demand, D = 725*12 = 8700
Ordering cost, S = 55
Holding cost, H = 6
Initial Product price, P = 16.
a) Economic Order Quantity ,= SQRT(2DS/H) = 399
b) Total annual cost with EOQ order size = Ordering cost + Holding cost + Product cost
Compute total inventory related cost for both suppliers for all price slabs
Supplier Allen Mfg:
Total cost of EOQ policy for supplier Allen Mfg. = (D/Q)*S+(Q/2)*H+D*P = (8700/399)*55 + (399/2)*6 + 8700*16 = $ 141,596
Total cost for Q=500 for Allen Mfg = (8700/500)*55 + (500/2)*6 + 8700*15.5 = $ 137,307
Total cost for Q=1000 for Allen Mfg = (8700/1000)*55 + (1000/2)*6 + 8700*15 = $ 133,979
Supplier Baker Mfg:
Total cost of EOQ policy for supplier Baker Mfg. = (D/Q)*S+(Q/2)*H+D*P = (8700/399)*55 + (399/2)*6 + 8700*16.1 = 142,466
Total cost for Q=400 for Baker Mfg = (8700/400)*55 + (400/2)*6 + 8700*15.6 = $ 138,116
Total cost for Q=800 for Baker Mfg = (8700/800)*55 + (800/2)*6 + 8700*15.1 = $ 134,368
We see that total annual cost is lowest for Allen Mfg (cost = $ 133979) and the corresponding order quantity = 1000
b) Spplier Allen Mfg should be used.
c) Optimal order quantity = 1000
d) Total cost = $ 133,979
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