Edwards Manufacturing Company purchases two component parts from three different

Question

Edwards Manufacturing Company purchases two component parts from three different suppliers. The suppliers have limited capacity, and no one supplier can meet all the company’s needs. In addition, the suppliers charge different prices for the components. Component price data (in price per unit) are as follows:

Each supplier has a limited capacity in terms of the total number of components it can supply. However, as long as Edwards provides sufficient advance orders, each supplier can devote its capacity to component 1, component 2, or any combination of the two components, if the total number of units ordered is within its capacity. Supplier capacities are as follows:

If the Edwards production plan for the next period includes 1050 units of component 1 and 775 units of component 2, what purchases do you recommend? That is, how many units of each component should be ordered from each supplier? Round your answers to the nearest whole number.

What is the total purchase cost for the components? Round your answer to the nearest dollar.

$  

Explanation / Answer

For each component, the supplier should offer the lowest price

For component 1 that will be supplier 1.

For component 2 that will be supplier 2 and 3

However, since we need to buy component 1 from supplier 1 as well so we should buy component 2 from supplier 3 instead

We need 1050 units of com2ponent 1

Supplier 1 only provides us with 575 units

For the other 475 units it must come from the supplier who offers the next lowest price, which supplier2

Thus we will get the remaining 475 units of component 1 from supplier 2

Supplier 3 on the other hand, will provide us with all 775 units of component 2

The amount we will pay supplier 1 is :

$10*575=$5750

The amount we will pay supplier 2 is

$10*475=$4750

The amount we will pay supplier 3 is

$10 *775=$7750

Hence the total purchase cost is $5750+$4750+$7750=$18250

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