1. CMW, a custom metalwork shop, makes a variety of products from three basic in
ID: 378440 • Letter: 1
Question
1. CMW, a custom metalwork shop, makes a variety of products from three basic inputs - bar stock, sheet metal, and rivets- which are purchased in parts, sheets and kits (boxes of 100), respectively. Projected use and cost of these raw materials for the upcoming year are as follows Use (1,000 units/yr) Cost ($/unit) Part Bar stock Sheet Metal Rivet Kits 120 400 1,000 40 20 0.5 The shop estimates that issuing a purchase order for any type of material costs $100 and uses and interest rate of 15% to calculate holding costs a. (10 Points) Assuming steady state use throughout the year, estimate the purchasing plus holding costs if all products are purchased four times per year. What happens to cost if we purchase each product 12 times per year? (10 points) What are the optimal order frequencies if we use the EOQ model separately for each product? How many total purchase orders must be placed under this policy? (10 points) Use the EOQ model to compute order quantities for each part and just the fixed cost of placing an order until the AVERAGE order frequency is 12 times per year. How does the holding cost compare to that in part (a) where all parts are ordered 12 times per year? b. c.Explanation / Answer
No. Of kits to be purchased
Bar stock = 120x1000/100 =1200, cost = 1200x40 =48000
Sheet = 400x1000/100 = 4000, cost = 4000x20=8000
Rivets = 1000x 1000 /100 = 10000,cost = 10000x0.5= 5000
(A) Annual Purchase cost = 48000+8000+5000 +400+ (48000+8000+5000)/2x 0.15
= 61000+400x3+4575 =66775
If the items are purchased 12 times per year, the cost will increase by 2400
Total cost = 69175
(B)
EOQ for bars = ( 2x1200x100/6)0.5 =200
Total orders =1200/200=6
EOQ for sheets = ( 2x4000x100/3)0.5 = 515
Total orders = 7.76=8
EOQ for rivets = ( 2x 10000x 100/0.075)0.5 = 5150
Total orders = 2
Grand total of orders =16
Total cost = 61000+4575+1600 = 67175
(C) If the average number of orders is 12, the condition is same As in (a) where each part was ordered 12 times per year. Hence the holding cost will remain the same.
Note: The language of part c is confusing, my opinion is based on what I got of it.
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