Mack\'s Manufacturing Company needs to source a principal components for a new p
ID: 379648 • Letter: M
Question
Mack's Manufacturing Company needs to source a principal components for a new product it has developed. Two possible suppliers, A and B, have been identified. Each supplier offers a different (all-units) discount for the component, as indicated in the table below. The discount is based on the number of units ordered each time an order is placed. The expected monthly demand for the component is 450 units. The annual inventory holding cost is 20% of the price of the component, and it costs $30 each time an order is placed. Orders must be placed in whole-number units. (Use an EOQ-based analysis with quantity discount to answer this question.) (You must show work to all parts of this question to receive credit.) SUPPLIER A Quantity Unit Price 1-59 60-299 300 SUPPLIER B Quantity Unit Price $15.00 14.80 14.60 1-79 80-3 320+ $15.10 19 14.90 14.45 a. Which supplier should be used? Explain. b. What order quantity is optimal if the objective is to minimize total annual costs? c. What is the minimum total annual cost?Explanation / Answer
a) Supplier A should be used because it is offering components at a lower price. Even the minimum order quantity to avail discount is less for supplier A as compared to supplier B.
b) Given:
Annual demand D= 450*12 = 5400 units
Annual holding cost H = (0.2*C) per unit where C is the price per unit
Prdering cost or Set up cost S = 30 $ per order
We know Economic order quantity EOQ = sqrt (2DS/H) = sqrt (2*5400*30 / 0.2C)
If C = $15 , EOQ = 328.63
If C= 14.8, EOQ = 330.85
If C = 14.6 , EOQ = 333.1
For all three value of C, we are getting order quantity of more than 300. If order quantity is more than 300, then we will get maximum discount and the unit price would be 14.6 $. It means we should order 333 units at a unit price of $ 14.6.
c) Total Annual cost = (no. of orders in a year*30) + (Annual holding cost per unit*avg.inventory)
No. of orders in a year = 5400/333
Average inventory = EOQ/2 = 333/2 = 166.5
Annual holding cost per unit = 0.2*14.6
Putting these values we get,
Total Annual cost = 972.66 $ per year
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.