Upon hearing that Ross White (see Problems 6-27 and 6-28) is considering producing the brackets in-house, the vendor has notified Ross that the purchase price would drop from $15 per bracket to $ 14.50 per bracket if Ross will purchase the brackets in lots of 1,000. Lead times, however, would increase to 3 days for this larger quantity.
(a) What is the total annual inventory cost plus purchase cost if Ross buys the brackets in lots of 1,000 at $ 14.50 each?
(b) If Ross does buy in lots of 1,000 brackets, what is the new ROP?
(c) Given the options of purchasing the brackets at $ 15 each, producing them in-house at $ 14.80, and taking advantage of the discount, what is your recommendation to Ross White?
In Problems 6-27, Ross White’s machine shop uses 2,500 brackets during the course of a year, and this usage is relatively constant throughout the year. These brackets are purchased from a supplier 100 miles away for $ 15 each, and the lead time is 2 days. The holding cost per bracket per year is $ 1.50 (or 10% of the unit cost) and the ordering cost per order is $ 18.75. There are 250 working days per year.
In Problems 6-28, Ross White (see Problem 6-27) wants to reconsider his decision of buying the brackets and is considering making the brackets in-house. He has determined that setup costs would be $ 25 in machinist time and lost production time, and 50 brackets could be produced in a day once the machine has been set up. Ross estimates that the cost (including labor time and materials) of producing one bracket would be $ 14.80. The holding cost would be 10% of this cost.