A manufacturer purchases components A and B from a supplier on a regular basis for $50 per
Question:
A manufacturer purchases components A and B from a supplier on a regular basis for $50 per unit. The annual demand for components A and B is 5000 and 2500 units, respectively. A fixed cost of $100, which is common to components A and B, is incurred each time an order is placed, while the component specific ordering cost for A and B is $60 and $400 per order, respectively. Components A and B have the same holding cost per unit per year which is 5% of the unit cost. The assumptions of Economic Order Quantity (EOQ) model are satisfied. Note that the fixed cost per order includes both common and component specific ordering costs, which need to be considered in the estimation of EOQ. Show the units and steps of calculation when you answer the following questions.
A. Determine the EOQ for components A and B if they are ordered and delivered independently.
B. What is the total annual cost (including annual material, ordering and holding costs) for each component if components A and B are ordered and delivered independently?
C. If components A and B are ordered and delivered jointly, what are the optimal order frequency (i.e., number of orders per year), optimal order quantity for components A and B, and the total annual cost (including annual material, ordering, and holding costs)? Round up order quantity to an integer and keep 2 decimal places for other numbers. Based on the total annual cost, should components A and B be ordered and delivered independently or jointly?
Data Analysis and Decision Making
ISBN: 978-0538476126
4th edition
Authors: Christian Albright, Wayne Winston, Christopher Zappe