An electronic assembly plant uses a standard microchip at a uniform rate of 2,000 units per year. The firm?s inventory holding cost rate is $0.25/$/year and its cost to process an order for purchasing any item used in the production process from an external vendor is $35/order. Three vendors have submitted bids, as summarized below, for supplying this microchip:

*This type of a fixed annual fee, independent of ordering policy, is only charged by Vendor 3

(a) Which of the above three vendors should be selected for supplying this microchip, based strictly on costs? Compute the replenishment order quantity and the associated annual total relevant cost resulting from your selection.

(b) Generally speaking, what major non-cost factors should be considered in selecting an appropriate vendor? How may one or more of these considerations affect your choice of the vendor in part (a)?

Transcribed Image Text:

Unit purchase price ($/unit): Fixed shipping charge ($/shipment): Variable shipping charge ($/unit): Annual Fee (S/year): Vendor 1 $2.39 0 $0.60 0 Vendor 2 $2.40 $500 0 0 Vendor 3 $2.29 0 $0.45 $450* Unit purchase price ($/unit): Fixed shipping charge ($/shipment): Variable shipping charge ($/unit): Annual Fee (S/year): Vendor 1 $2.39 0 $0.60 0 Vendor 2 $2.40 $500 0 0 Vendor 3 $2.29 0 $0.45 $450*

Answer rating: 100% (QA)

Answer Vendor A Replenishment order quantity sqrt2DSH sqrt220003502 83... View the full answer