Question

1. The purchasing manager of a distillery company is considering three sources of supply for oak barrels. The first supplier offers any quantity of barrels at `150 each. The second supplier offers barrels in lots of 150 or more at `125 per barrel. The third supplier offers barrels in lots of 250 or more at `100 each. The distillery uses 1,500 barrels a year at constant rate. Carrying costs are 40 percent of purchase price, and it costs the purchasing agent `400 to place an order. Calculate the total annual cost for the orders placed to the probable suppliers, and find out the supplier to whom the orders should be placed.
2. A company uses 8,000 units of a product as a raw material, costing `10 per unit. The administrative cost per purchase is `40. The holding costs are 28% of the average inventory. The company is following an optimal purchase policy and places orders according to the EOQ. It has been offered a quantity discount of 1% if it purchases its entire requirement only four times a year. Should the company accept the offer of quantity discount of one percent? If not what minimum discount should the company demand?
3. Chris Sandvig Irrigation has summarized the price list from four potential suppliers of an underground valve given in the table below. Annual usage is 2400 valve, order cost is `10 per order and annual inventory holding cost are `3.33 per unit. Which vendor should be selected and what order quantity is best if Sandvig Irrigation wants to minimize total cost?

Vendor A		Vendor B
Quantity	Price (`)	Quantity	Price (`)
1-49	35.00	1-74	34.75
50-74	34.75	75-149	34
75-149	33.55	150-299	32.80
150-299	32.35	300-499	31.60
300-499	31.15	500+	30.50
500+	30.75
Vendor C		Vendor D
Quantity	Price (`)	Quantity	Price (`)
1-99	34.50	1-199	34.25
100-199	33.75	200-399	33.00
200-399	32.50	400+	31.00
400+	31.10

4. MP VanOyen Manufacturing has gone out on bid for a regular component. Expected demand is 700 units per month. The item can be purchased from either Allen Manufacturing or Baker Manufacturing. Their price lists are shown in the table. Ordering cost is `50 and the annual holding cost per unit is`5.

Allen manufacturing		Baker manufacturing
Quantity	Unit Price	Quantity	Unit Price
1-499	`16	1-399	`16.10
500-999	`15.50	400-799	`15.60
1000+	`15.00	800+	`15.10

1. What is the economic order quantity?
2. Which supplier should be used and why?
3. What is optimal order quantity and total annual cost of ordering, purchasing and holding the component?
   5. Radovilsky Manufacturing Company in Hayward, California, makes flashing lights for toys. The company operates its production facility 300 days per year. It has orders for about 12000 flashing lights per year and has the capability of producing 100 per day. Setting up the light production costs `50. The cost of each light is `1. The holding costs is `0.10 per light per year.
      1. What is the optimal size of the production run?
      2. What is the average holding cost per year?
      3. What is the average set up cost per year?
      4. What is the total cost per year including the cost of the lights?

Answer 1

a. The problem is asking to find out the supplier whom to the order is placed. We need to find out the total cost associated with all the 3 Suppliers. In order to calculated this first we need to find out the EOQ for each supplier and choose the supplier that falls within the condition.