Question

Eight Flags operates several amusement parks in the Midwest. The company stocks machine oil to service the machinery for the many rides at the parks. Eight Flags needs 30,000 gallons​ (D) of oil​ annually; the parks operate 50 weeks a year. Management is unsatisfied with the current supplier of oil and has obtained two bids from other suppliers. The data are contained in the following table.                                                                                                                                               

	Annual Freight Costs
	Shipping Quantity​ (Q)
Supplier	​5,000	​10,000	​15,000	​Price/Unit (p)	Annual Holding​ Cost/Unit (H)	Lead Time​ (L) (wks)	Annual Administrative Cost
Sharps	​$5,000	​$3,600	​$3,300	​$3.70	​$0.74	5	​$5,000
Winkler	​$5,600	​$4,100	​$3,600	​$3.90	​$0.78	3	​$4,000

Which supplier and which shipping quantity will provide the lowest costs for Eight​ Flags?

Using ______ and a shipping quantity of ______ is the lowest cost​ alternative, with annual total costs to Eight Flags of $__________ .

Answer 1

Total cost = material cost + annual freight cost + (shipping quantity/2+weekly demand*lead time)*holding cost per unit per year + annual administrative cost

Supplier = Sharps and shipping quantity = 5000,

Total cost = 30000*3.7 + 5000 + (5000/2+(30000/50)*5)*0.74 + 5000 = 125070

Supplier = Sharps and shipping quantity = 10000,

Total cost = 30000*3.7 + 3600 + (10000/2+(30000/50)*5)*0.74 + 5000 = 125520

Supplier = Sharps and shipping quantity = 15000,

Total cost = 30000*3.7 + 3300 + (13000/2+(30000/50)*5)*0.74 + 5000 = 126330

Supplier = Winkler and shipping quantity = 5000,

Total cost = 30000*3.9 + 5600 + (5000/2+(30000/50)*3)*0.78 + 4000 = 129954

Supplier = Winkler and shipping quantity = 10000,

Total cost = 30000*3.9 + 4100 + (10000/2+(30000/50)*3)*0.78 + 4000 = 130404

Supplier = Winkler and shipping quantity = 15000,

Total cost = 30000*3.9 + 3600 + (15000/2+(30000/50)*3)*0.78 + 4000 = 131854

Using Sharps and a shipping quantity of 5000 is the lowest cost​ alternative, with annual total costs to Eight Flags of $125070