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

Question

8. M. P. VanOyen Manufacturing has gone out on bid for a regulator component. Expected demand is 675 urits per month. The ilem can be purchased from ether Alen Manufacturing or Baker Manufachuring. Their price ists are shown in the table. Ordering cost is $55, and annual holding cost per unit is $6 Allen Mf Baker Mto. Unit Price $16.00 15.50 15.00 Quantity Quantity $16.10 15 60 500-999 1000+ units (round your response to the nearest whoke numoe) a) What is the economic order quantry price is not a consideration? b) Which supplier, based on all options with regard to discounts, should be used? (1) c) What is the optimal arder quareity and total annual cost of ordering. purchasing, and holding the component? The optmal oader quanetywith (1) O Allen Mfg. fround your respanses to the neareat whale number) O Baker Mg

Explanation / Answer

a. annual demand = 675*12 = 8100.

EOQ = (2*D*S/H)^0.5 = (2*8100*55/6) = 385.36

This will be rounded off to 385

b & c:

For any discount, if the order quantity is too low to qualify for the discount, adjust Q upward to the lowest feasible quantity.

Allen:

Baker:

Total annual cost = ordering cost+holding cost+purchase cost = D/Q*S + Q/2*H + C*D

Annual costs for Allen:

Annual costs for Baker:

From the above 2 tables we can see that lowest total annual cost = 124,945.5 and this happens in case of Allen when quantity range is 1000+

Thus the answers are:

b1. Allen Mfg.

c. Optimal order quantity = 1000, with a total cost of 124,945.5 or rounded off to 124,946

Quantity range Minimum Unit price Q Adjusted Q 1-499 1 16.00 385 385 500-999 500 15.50 385 500 1000+ 1,000 15.00 385 1,000

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