Question: A PC manufacturer needs to source the hexa-core processors used in the production of its laptops. The company requires these processors at a fairly steady

A PC manufacturer needs to source the hexa-core

A PC manufacturer needs to source the hexa-core processors used in the production of its laptops. The company requires these processors at a fairly steady rate of 100 per month. They have to decide among three sourcing options for these processors: supplier A, supplier B, or in-house production. Supplier A offers an all-units discount schedule for its processors: It charges $250 for each processor if the order size is less than 100, $200 for each processor if the order size is between 100 and 199, and $150 for each processor if the order size is greater than 199. The order setup cost required by this supplier is $300. Supplier B offers an incremental discount schedule for its processors: It charges $250 for each processor if the order size is less than or equal to 100, $175 for each processor purchased beyond 100 if the order size is between 101 and 200, and $75 for each processor purchased beyond 200. The order setup cost required by this supplier is $100. . For the option of in-house production, it costs $750 to initiate a production run and each processor costs the company $100 to manufacture. The company has the capacity to produce 300 processors per month. The inventory holding costs are based on a 20 percent annual interest rate. (a) (20 points) If the company works with supplier A, what is the optimal order quantity for processors and how many times should the company order in a year? (b) (20 points) If the company works with supplier B, what is the optimal order quantity for processors and how many times should the company order in a year? (c) (15 points) If the company prefers in-house production, what is the optimal size of production run for processors and how many times should the manufacturing facility be set up for production of processors in a year? (d) (15 points) Calculate the optimal total annual cost for each option. Which option should the company choose? (e) (30 points) Suppose that the company wants to hold no more than 200 processors in its inventory at any time. Calculate the optimal total annual cost for each option in this case. Would your answer in part (d) be different in this case

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related General Management Questions!