HW Problems for Inventory Management (Module 5)

PROBLEM 1

Thaarugo Inc produces a GPS device that is becoming popular in parts of Scandinavia. When Thaarugo produces one of these, a printed circuit board (PCB) is used, and it is populated with several electronic components. Thaarugo determines that it needs about 16,500 of this type of PCB each year. Demand is relatively constant throughout the year and the ordering cost is about $20/ order; the holding cost is 25% of the price of each PCB. Two companies are competing to become the dominant supplier of PCB, and both have offered quantity discounts as shown in the following table.

REMEMBER TO EXPLICITLY WRITE THE FORMULAS USED AND THE VALUE FOR EACH VARIABLE.

Which of the two suppliers should be selected if Thaarugo wishes to minimize total annual inventory costs? Explain.

Supplier A- Quantity	Supplier A Price	Supplier B- Quantity	Supplier B Price
1-199	$38.60	1-299	$38.90
200-499	$35.75	300-999	$35.25
500 or more	$34.80	1000 or more	$34.70