M. P Vanoyen Manufacturing has gone out on bid for a regulator component. Expect
ID: 355591 • Letter: M
Question
M. P Vanoyen Manufacturing has gone out on bid for a regulator component. Expected demand is 675 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 $50, and annual holding cost per unit is Allen Mfg Baker Mfg Quantit Un Quantity 1-399 400-799 800+ Un 499 500-999 1000+ $16.00 15.50 15.00 $16.10 15.60 15.10 a) What is the economic order quantity if price is not a consideration 402 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
EOQ = SQRT(2 × Annual Demand × Cost Per Order / Carrying Cost Per Order)
Annual demand = 675*12 = 8100
EOQ = SQRT(2*8100*50/5) = 402
We can use Baker Manufacturing as in 400-799 range their cost is lowest.
c) Optimal order quantity = 402
Number of orders = 81000 / 402 = 201.49 or 202
Annual ordering cost = 202*50 = $ 10,100
Total cost for orders = 81000*15.60 = 1263600
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