QUESTION $4(20$ Marks$)$

Study the information provided below and answer the following questions.

$4\mathrm{.}1.$ MC Electronics supplies microcomputer circuitry to a company that incorporates microprocessors into

the production of refrigerators and other home appliances. One of the components has an annual demand

of $25000$ units, and this is constant throughout the year. Carrying cost is estimated to be R$15$ per unit per

year, and the setup cost is R$300$ per order.

$4\mathrm{.}1\mathrm{.}1.$ To minimize cost, how many units should be ordered each time an order is placed? $(3$ marks$)$

$4\mathrm{.}1\mathrm{.}2.$ How many orders per year are needed with the optimal policy? $(2$ marks$)$

$4\mathrm{.}1\mathrm{.}3.$ Suppose that MC Electronics wants to change its ordering policy such that exactly $1500$ units are

ordered each time an order is placed. For this new ordering policy $($of Q $=1500)$ to be optimal, determine

what the setup cost would have to be$.$

$(4$ marks$)$

$4\mathrm{.}2.$ Arthur Phosa is the operations manager of AMF&M Inc., a manufacturer of metal parts. AMF&M

supplies $100000$ wheel bearings each year to WPT Enterprises, a larger assembly Plant. This supply

arrangement has been stable for several years. Setup cost for AMF&M is R$800,$ and holding cost is R$1\mathrm{.}20$

per wheel bearing per year. AMF&M can produce $500$ wheel bearings per day. WPT Enterprises is a just$-$intime manufacturer and requires that $50$ bearings be shipped to it each business day.

$4\mathrm{.}2\mathrm{.}1.$ What is the optimum production quantity? $(4$ marks$)$

$4\mathrm{.}2\mathrm{.}2.$ What is the total setup and holding costs for AMF&M$?(5$ marks$)$

$4\mathrm{.}2\mathrm{.}3.$ How many production runs of wheel bearings will AMF&M have in a year? $(2$ marks$)$