* M. P. VanOyen Manufacturing has gone out on bid for a regulator component. Exp
ID: 432739 • Letter: #
Question
* M. P. VanOyen Manufacturing has gone out on bid for a regulator component. Expected demand is 700 units per month. The Problem 12.26 ?? Question Help 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 $4 Allen Mfg Baker Mfg Quantity 1-499 500-999 1000+ Unit Price $16.10 15 Unit Price Quantity 400-799 15.50 15.00 a) What is the economic order quantity if price is not a consideration? 458 units (round your response to the nearest whole number). b) Which supplier, based on all options with regard to discounts, should be used? Allen Mtfg. c) What is the optimal order quantity and total annual cost of ordering, purchasing. and holding the component? The optimal order quantity is 1000 with a total cost of $ 127833 (round your responses to the nearest whole number), Enter your answer in the edit fields and then click Check Answer All parts showing Clear All 27 MacBook AirExplanation / Answer
a) Economic Order Quantity
Economic Order Quantity (EOQ) = ? ((2*D*O ) / C)
Annual Demand (D) = 700*12 = 8400 units
Ordering cost (O) = $50
Holding cost (C) = $4
Economic Order Quantity (EOQ) = ? ((2*8400*50) / 4)
= 458 units
b)
Total Cost = Total Ordering Cost + Total Holding Cost + Total Purchase Cost
Total Ordering cost = (Annual Demand / EOQ) * Ordering cost
= (8400/458) * 50 =$917
Total Holding cost = (EOQ / 2) *Holding cost
= (458/2) * 4 = $916
Total Purchase Cost = Demand * Unit price
Allen Mfg.
Total Purchase cost = 8400 * 15 = 126,000 (as units are more that 1000 so unit price $15 is taken)
Total Cost of Allen Mfg. = Total Ordering Cost + Total Carrying Cost + Total Purchase Cost
Total Cost = 917 + 916 + 126,000 = $ 127,833
Baker Mfg.
Total Purchase cost = 8400 * 15.10 = $126,840 (as units are more that 1000 so unit price $15.10 is taken)
Total Cost of Baker Mfg = 917 + 916 + 126840 =$128,674
So, Based on all options with regard to discounts Allen Mfg should be chosen as Total cost of Allen Mfg is lower than Baker Mfg
c)
As at 1000 quantity total cost of Allen Mfg is minimum, so optimal quantity is 1000 with total cost of = $ 127,833
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