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In: Operations Management

LM.81 Monkey's Fist is trying to determine where to source their product. In the past, they...

LM.81 Monkey's Fist is trying to determine where to source their product. In the past, they have sourced solely domestically, but they have sufficiently grown to look at international suppliers. Next month's expected demand is 6,725 units. There are three suppliers to choose from, one domestic, the other two offshore. The table below contains all relevant cost data. Note that both international shipping and inland freight costs are a flat fee for a shipment of up to 12,000 units of demand—whether shipping one unit, one thousand units, or 12,000 units, the cost is the same (the flat fee).

Criteria Domestic   Foreign 1   Foreign 2  
Price/Unit $5.77 $5.06 $5.09
Packaging Cost/Unit $0.13 $0.40 $0.26
International Shipping/Entire Shipment   $0 $770 $700
Inland Freight/Entire Shipment $300 $340 $340

What is the total landed cost for the domestic supplier? (Display your answer as a whole number.)
   What is the total landed cost for foreign supplier 1? (Display your answer as a whole number.)
   What is the total landed cost for foreign supplier 2? (Display your answer as a whole number.)
   Suppose actual demand is only 88% of expected demand. What would be the total landed cost of the domestic supplier? (Display your answer as a whole number.)
   At what volume of monthy demand would the total cost be the same for the domestic supplier and foreign supplier 1? (Display your answer as a whole number.)
   

Solutions

Expert Solution

Let the number of units = X (Considering X is not more than 12000)

Total landed cost for the domestic supplier = 5.77X + 0.13X + 0 + 300 = 5.90X + 300

Total landed cost for Foreign supplier 1 = 5.06X + 0.40X + 770 + 340 = 5.46X + 1110

Total landed cost for Foreign supplier 2 = 5.09X + 0.26X + 700 + 340 = 5.35X + 1040

Next month's expected demand is 6,725 units. So X = 6725

Therefore,

Total landed cost for the domestic supplier = ( 5.90 x 6725) + 300 = 39677.5 + 300 = $39977.5 = $ 39978 (Rounding off)

Total landed cost for Foreign supplier 1 = (5.46 x 6725) + 1110 = 36718.5 + 1110 = $ 37828.5 = $ 37829 ( Rounding off)

Total landed cost for Foreign supplier 2 = (5.35 x 6725) + 1040 = 35978.75 + 1040 = $ 37018.75 = $ 37019 ( Rounding off)

If Actual demand is 88% of expected demand:

X = 0.88 x 6725 = 5918

Therefore,

Total landed cost for the domestic supplier = ( 5.90 x 5918) + 300 = 34916.2 + 300 = $ 35216.2 = $ 35216 (Rounding off)

The volume of monthy demand for which the total cost would be the same for the domestic supplier and foreign supplier 1:

5.90X + 300 = 5.46X + 1110

5.90X - 5.46X = 1110 - 300

0.44X = 810

X = 810 / 0.44 = 1840.909 = 1841 units ( Rounding off)

keosha answered 4 weeks ago
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