M. P. VanOyen Manufacturing has gone out on bid for a regulator component. Expec
ID: 385393 • Letter: M
Question
M. P. VanOyen Manufacturing has gone out on bid for a regulator component. Expected demand is 725 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 $45, and annual holding cost per unit is $7.
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 _____?
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+ 15.10Explanation / Answer
Solution:
the annual demand is= 725*12= 8700 units
the ordering cost is $45, holding cost $3
EOQ= [sqrt{2AO/C}] , where A is annual demand, O is ordering cost and C is carrying cost
= [sqrt{2*8700*45/3}] = 510.88 units, it means the economic order is 511 units
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