. 12.26 M. P. VanOyen Manufacturing has gone out on bidt a regulator component.

Question

. 12.26 M. P. VanOyen Manufacturing has gone out on bidt a regulator component. Expected demand is 700 units per mon The item can be purchased from either Allen Manufacturi Baker Manufacturing. Their price lists are shown in the tabe Ordering cost is $50, and annual holding cost per unit is $s 50 ALLEN MFG BAKER MFG QUANTITY 1-499 500-999 1,000+ UNIT PRICE $16.00 15.50 15.00 QUANTITY 1-399 400-799 800+ UNIT PRICE $16.10 15.60 15.10 a) What is the economic order quantity? b) Which supplier should be used? Why? c) What is the optimal order quantity and total annual cost o ordering, purchasing, and holding the component?Px

Explanation / Answer

12.26

A. D=12*700= 8400

Economic order quantity, Q = (2DS/H)^(1/2) = (2*8400*50/5)^(1/2) = 410

B. Step 1. Calculate a value for Q*, we found it , Q* = 410

Step 2. For any discount if any quantity is too low to qualify for the discount, adjust Q upward to the lowest feasible quantity.

For Allen :   

For Baker:

C. Calculate the total annual cost for each Q*

Total Annual cost= Holding cost + Purchasing cost + Ordering cost

TC= DS/Q + HQ/2 + CD

For Allen:

Total

For Baker:

Total

Ans Q* with the lowest total annual cost :

For Allen : 1000+ & total cost: 128920

For Baker: 800+ & total cost :129365

Quantity Min Unit Price Q* Adjusted Q* 1-499 1 16 410 410 500-999 500 15.5 410 500 1000+ 1000 15 410 1000

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