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 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

$55, and annual holding cost per unit is $3.

Allen Mfg.

Baker Mfg.

Quantity

Unit Price

Quantity

Unit Price

1-499

$16.00

1-399

$16.10

500-999

15.50

400-799

15.60

1000+

15.00

800+

15.10

a) What is the economic order quantity if price is not a consideration?

units (round your response to the nearest whole number).

b) Which supplier, based on all options with regard to discounts, should be used?

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?

Explanation / Answer

annual demand D = 675 * 12 = 8100

ordering cost S =55

Holding cost H = 5

EOQ = sqrt(2DS/H)

= sqrt( 2*8100 *55/3)

= 545 units

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