Question: 2) A FIRM IS CONSIDERING CHANGING HOW IT PLACES ORDERS WITH A SUPPLIER TO TAKE ADVANTAGE OF AVAILABLE QUANTITY DISCOUNTS. THE DETAILS ARE BELOW: 60,000

2) A FIRM IS CONSIDERING CHANGING HOW IT PLACES

2) A FIRM IS CONSIDERING CHANGING HOW IT PLACES ORDERS WITH A SUPPLIER TO TAKE ADVANTAGE OF AVAILABLE QUANTITY DISCOUNTS. THE DETAILS ARE BELOW: 60,000 units (D) are required over the 360-day planning period (D) and are used at a constant daily rate. Payment is due 25 days after order delivered. Inventory pricing (C') if order size is: 0-9,999 $6.00/unit 10,000 - 19,999 $4.90/unit 20,000+ $3.75/unit Ordering Costs (OC) are $100/order. Holding Costs (HC) are $2.15/unit based on average inventory. Ordering and Holding Costs are paid at end of the production period. The cost of capital is 16%. It is considering three options (Q): Current Inventory System - 4,000 units per order Alternative Inventory System 'A' - 10,000 units per order Alternative Inventory System 'B' - 20,000 units per order a. Complete the following chart to determine which inventory system has the lowest Total Cost excluding the cost of capital. Inventory Order Size Cost ( CD) # Orders (DO) Option Days Between Ordering Cost Holding Costs Orders (Planning COC (DOT (HC (0/2)] Period/Orders Total Cost Existing "A B b. Complete the following chart to determine which inventory system has the lowest PV, i.e. the lowest total cost after taking into consideration the cost of capital. Note: The information in the first four columns is the same as the previous chart. However, the timing of each order is different so the details of each order is needed to calculate the present value equivalent. The work is completed for you for the existing system and System A'. Please complete the chart for System 'B'. PVF PV Payment Due att 25 49 Existing System Order Delivered Number att = 1 0 2 24.0 3 48.0 4 72.0 5 96.0 6 120.0 7 144.0 73 97 121 145 169 193 217 8 9 Order Inventory Quantity Cost 4,000 $ 24,000 4,000 $ 24,000 4,000 $ 24,000 4,000 $ 24,000 4,000 $ 24,000 4,000 $ 24,000 4,000 $ 24,000 4,000 $ 24,000 4,000 $ 24,000 4,000 $ 24,000 4,000 $ 24,000 4,000 $ 24,000 4,000 $ 24,000 4,000 $ 24,000 4,000 $ 24,000 $ $ 4,300 TOTALS $365,800 0.98915989 $ 23,740 0.97897221 $ 23,495 0.968997251 $ 23,756 0.95921371 $ 23,021 0.94963055 $ 22,791 0.94023699 $ 22,566 0.93102745 $ 22,345 0.92199656 $ 22,128 0.91313920 $ 21,915 0.904450391 $ 21,707 0.89592538 $ 21,502 0.88755958 $ 21,301 0.87934856 $ 21,104 0.87128807 $ 20,911 0.86337402 $ 20,721 0.86370090 $ 1,296 0.86370090$ 3,714 $ 337,513 10 241 168.0 192.0 216.0 240.0 264.0 288.0 312.0 336.0 11 265 12 289 313 337 13 14 151 Ordering Costs Holding Costs 1,500 361 360 360 System A Order Number Payment Due att PVF PV 1 2 3 Delivered at t = 0 60 120 180 240 Order Inventory Quantity Cost 10,000 $ 49,000 10,000 $ 49,000 10,000 $ 49,000 10,000 $ 49,000 10,000 $ 49,000 10,000 $ 49,000 25 85 145 205 265 0.98915989 $ 48,469 0.96407818 $ 47,240 0.94023699 $ 46,072 0.91754651 $ 44,960 0.89592538 $ 43,900 0.87529976 $ 42,890 4 5 6 300 325 Ordering Costs Holding Costs $ 600 $ 10,750 $ 305,350 360 360 0.86370090 $ 518 0.86370090 $ 9,285 $ 283,333 TOTALS Delivered att = Order Quantity Inventory Cost System B Order Number 1 2 3 Payment Due at t = PVF PV WN Ordering Costs Holding Costs 2) A FIRM IS CONSIDERING CHANGING HOW IT PLACES ORDERS WITH A SUPPLIER TO TAKE ADVANTAGE OF AVAILABLE QUANTITY DISCOUNTS. THE DETAILS ARE BELOW: 60,000 units (D) are required over the 360-day planning period (D) and are used at a constant daily rate. Payment is due 25 days after order delivered. Inventory pricing (C') if order size is: 0-9,999 $6.00/unit 10,000 - 19,999 $4.90/unit 20,000+ $3.75/unit Ordering Costs (OC) are $100/order. Holding Costs (HC) are $2.15/unit based on average inventory. Ordering and Holding Costs are paid at end of the production period. The cost of capital is 16%. It is considering three options (Q): Current Inventory System - 4,000 units per order Alternative Inventory System 'A' - 10,000 units per order Alternative Inventory System 'B' - 20,000 units per order a. Complete the following chart to determine which inventory system has the lowest Total Cost excluding the cost of capital. Inventory Order Size Cost ( CD) # Orders (DO) Option Days Between Ordering Cost Holding Costs Orders (Planning COC (DOT (HC (0/2)] Period/Orders Total Cost Existing "A B b. Complete the following chart to determine which inventory system has the lowest PV, i.e. the lowest total cost after taking into consideration the cost of capital. Note: The information in the first four columns is the same as the previous chart. However, the timing of each order is different so the details of each order is needed to calculate the present value equivalent. The work is completed for you for the existing system and System A'. Please complete the chart for System 'B'. PVF PV Payment Due att 25 49 Existing System Order Delivered Number att = 1 0 2 24.0 3 48.0 4 72.0 5 96.0 6 120.0 7 144.0 73 97 121 145 169 193 217 8 9 Order Inventory Quantity Cost 4,000 $ 24,000 4,000 $ 24,000 4,000 $ 24,000 4,000 $ 24,000 4,000 $ 24,000 4,000 $ 24,000 4,000 $ 24,000 4,000 $ 24,000 4,000 $ 24,000 4,000 $ 24,000 4,000 $ 24,000 4,000 $ 24,000 4,000 $ 24,000 4,000 $ 24,000 4,000 $ 24,000 $ $ 4,300 TOTALS $365,800 0.98915989 $ 23,740 0.97897221 $ 23,495 0.968997251 $ 23,756 0.95921371 $ 23,021 0.94963055 $ 22,791 0.94023699 $ 22,566 0.93102745 $ 22,345 0.92199656 $ 22,128 0.91313920 $ 21,915 0.904450391 $ 21,707 0.89592538 $ 21,502 0.88755958 $ 21,301 0.87934856 $ 21,104 0.87128807 $ 20,911 0.86337402 $ 20,721 0.86370090 $ 1,296 0.86370090$ 3,714 $ 337,513 10 241 168.0 192.0 216.0 240.0 264.0 288.0 312.0 336.0 11 265 12 289 313 337 13 14 151 Ordering Costs Holding Costs 1,500 361 360 360 System A Order Number Payment Due att PVF PV 1 2 3 Delivered at t = 0 60 120 180 240 Order Inventory Quantity Cost 10,000 $ 49,000 10,000 $ 49,000 10,000 $ 49,000 10,000 $ 49,000 10,000 $ 49,000 10,000 $ 49,000 25 85 145 205 265 0.98915989 $ 48,469 0.96407818 $ 47,240 0.94023699 $ 46,072 0.91754651 $ 44,960 0.89592538 $ 43,900 0.87529976 $ 42,890 4 5 6 300 325 Ordering Costs Holding Costs $ 600 $ 10,750 $ 305,350 360 360 0.86370090 $ 518 0.86370090 $ 9,285 $ 283,333 TOTALS Delivered att = Order Quantity Inventory Cost System B Order Number 1 2 3 Payment Due at t = PVF PV WN Ordering Costs Holding Costs

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