A1) Truckloads required: 1 Truck load = 52,000 lbs 1 engine = 20 pounds Therefor
ID: 373581 • Letter: A
Question
A1) Truckloads required:
1 Truck load = 52,000 lbs 1 engine = 20 pounds
Therefore 1 truckload carries = 52,000/ 20 =2600 engines
Therefore, only 1 part load truck is required for carrying order size of 900 engines
Part truck load costs = $1.2 per ton mile
Therefore, Trucking cost of (part truckload) of 1 unit of 20 pound engine costs
= $ 1.2 x 20/2000 per mile = $0.012 per mile per engine
Cost item
Supplier 1
Supplier 2 ($/unit)
Price, $
$ 605 x 10,800 = $ 6,534,000
$ 600 x 10,800 = $ 6,480,000
Tooling cost (assumed for full annual forecast),$
$ 30,760
$ 28,600
Trucking cost, $
0.012 x 135 miles x 10,800
= 17,496
0.012 x 100 miles x 10,800
= 12,960
Order processing cost ( @ $155 per order of 900 for a total of 12 orders)
$ 1860
$ 1860
Inventory carrying cost (@ 20% of the average value of inventory per year)
0.20 x 900/2 x 605 = $ 54,450
0.2 x 900/2 x 600 = $ 54,000
Total cost ($)
$ 6,638,566
$ 6,577,420
A2) I would select supplier 2 for lower total cost
B1) Truckload quantity = 2600 engines
Number of orders per annum for order size of 2600 engines = 10,800/2600 = 4.15
Average inventory size = 2600 /2
Full truck load cost = $0.8 per ton mile
Therefore, Trucking cost of (full truckload) of 1 unit of 20 pound engine costs
= $ 0.8 x 20/2000 per mile = $0.008 per mile per engine
Revised calculation on basis of above as follows :
Cost item
Supplier 1
Supplier 2 ($/unit)
Price, $
$ 595 x 10,800 = 6,426,000
$ 600 x 10,800 = 6,480,000
Tooling cost (assumed for full annual forecast),$
$ 30,760
$ 28,600
Trucking cost, $
0.008 x 135 miles x 10,800
= $ 11,664
0.008 x 100 miles x 10,800
= $ 8640
Order processing cost (@ $155 per order of 2600 for a total of 4.15 orders)
$ 643.25
$ 643.25
Inventory carrying cost (@ 20% of the average value of inventory per year)
0.20 x 2600/2 x 605 = $ 157,300
0.20 x 2600/2 x 600 = 156,000
Total cost ($)
$ 6,626,367
$ 6,673,883
B2) Yes! The Supplier selection will change to Supplier 1 because of lower cost.
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Cost item
Supplier 1
Supplier 2 ($/unit)
Price, $
$ 605 x 10,800 = $ 6,534,000
$ 600 x 10,800 = $ 6,480,000
Tooling cost (assumed for full annual forecast),$
$ 30,760
$ 28,600
Trucking cost, $
0.012 x 135 miles x 10,800
= 17,496
0.012 x 100 miles x 10,800
= 12,960
Order processing cost ( @ $155 per order of 900 for a total of 12 orders)
$ 1860
$ 1860
Inventory carrying cost (@ 20% of the average value of inventory per year)
0.20 x 900/2 x 605 = $ 54,450
0.2 x 900/2 x 600 = $ 54,000
Total cost ($)
$ 6,638,566
$ 6,577,420
Explanation / Answer
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 at least 900 units. Because of the unique characteristics of the engine, special tooling is needed during the manufacturing process for 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 have been collected:
Note: Assume that half of lot size is in inventory on average (900/2 = 450 units).
Two qualified suppliers have submitted the following quotations:
Your assistant has obtained the following freight rates from your carrier:
Note: Per ton-mile = 2,000 lbs. per mile.
a-1. Calculate the total cost for each supplier. (Round your answers to the nearest whole number.)
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. (Do not round intermediate calculations. Round "Required lot size for truckload" and final answers to the nearest whole number.)
b-2. Would your supplier selection change?
Requirements (annual forecast) 10,800 units Weight per engine 20 pounds Order processing cost $ 155 per order Inventory carry cost 20 percent of the average value of inventory per year
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