Your company assembles five different models of a motor scooter that is sold in

Question

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 1,240 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 (1,240/2 = 620 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.)

HINT: Use (full) truckload cost rates and the lowest (feasible) unit cost for all calculations. For example, if there are 8.3 orders per year, don’t split the 8.3 orders into 8 full truckloads and 0.3 less-than-truckloads - use the full truckload rate for all 8.3 orders. For annual purchase cost, don’t use two different unit costs for the 8 complete orders and the 0.3 partial orders – use the lowest (feasible) unit cost for all 8.3 purchase orders based on the lot size needed for a full truckload.

b-2. Would your supplier selection change?

  

Requirements (annual forecast) 14,880 units Weight per engine 25 pounds Order processing cost $ 190 per order Inventory carry cost 20 percent of the average value of inventory per year

Explanation / Answer

a-1:

a-2: I would choose Supplier 1

b-1:

b-2: No, I will still go with Supplier 2

Since truckload is 45,000 lbs. hence the number of engines = 1800 units Due to physical constraints the order size can only be 1240 units Difference (less-than-truckload) 560 units

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