M. P. VanOyen Manufacturing has gone out on bid for a regulator component. Expec

Question

M. P. VanOyen Manufacturing has gone out on bid for a regulator component. Expected demand is 700 units per month. The item can be purchased from either Allen Manufacturing or Baker Manufacturing. Their price lists are shown in the table. Ordering cost is $55, and annual holding cost per unit is $7 Allen Mfg Baker Mfg Quantity 1-499 500-999 1000+ riceQuantity Unit Price $16.10 $16.00 15.50 15.00 1-399 15.60 15.10 400-799 800+ a) What is the economic order quantity if price is not a consideration? 363 units (round your response to the nearest whole number) b) Which supplier, based on all options with regard to discounts, should be used? Allen Mfg c) What is the optimal order quantity and total annual cost of ordering, purchasing, and holding the component? The optimal order quantity is with a total cost of S(round your responses to the nearest whole number)

Explanation / Answer

D = annual demand = 700 x 12 = 8400
S = ordering cost = $55
H = holding cost per unit per annum = $7

(a)

EOQ = (2*D*S/H)1/2 = SQRT(2*8400*55/7) = 363

(b)

Allen Mfg.

Baker Mfg.

Allen Mfg. shoul be seleced due to lower total cost

(c)

Optimal order tquantity = 1000

Total cost = $129,962

Order size
Q Price
P Annual demand
D Holding cost
Q.H/2 Ordering cost
(D/Q)*S Cost of purchase
(D*P) Total
Cost 363 $16.0 8400 $1,271 $1,273 $134,400 $136,943 500 $15.5 8400 $1,750 $924 $130,200 $132,874 1000 $15.0 8400 $3,500 $462 $126,000 $129,962

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