Question

Problem 4-11 (Algorithmic)

Edwards Manufacturing Company purchases two component parts from three different suppliers. The suppliers have limited capacity, and no one supplier can meet all the company’s needs. In addition, the suppliers charge different prices for the components. Component price data (in price per unit) are as follows:

	Supplier
Component	1	2	3
1	$10	$14	$10
2	$12	$12	$10

Each supplier has a limited capacity in terms of the total number of components it can supply. However, as long as Edwards provides sufficient advance orders, each supplier can devote its capacity to component 1, component 2, or any combination of the two components, if the total number of units ordered is within its capacity. Supplier capacities are as follows:

Supplier	1	2	3
Capacity	650	925	800

If the Edwards production plan for the next period includes 1025 units of component 1 and 825 units of component 2, what purchases do you recommend? That is, how many units of each component should be ordered from each supplier? Round your answers to the nearest whole number. If your answer is zero, enter "0".

	Supplier
	1	2	3
Component 1
Component 2

What is the total purchase cost for the components? Round your answer to the nearest dollar.

$ ____________

Answer 1

Here as per the given data, the number of units for component 1 is 1025 and for the component 2 is 852 units.

as given above the suppliers 1 and 3 offers at lower price than supplier 2.

supplier 1 can supply 650 units of component 1 . now the remaining units are 1025-650= 375 units.

supplier 3 can supply the remaining 375 units.

Now the amount of money we have to pay for supplier 1 is 650*10= $6500

the amount of money we have to pay for supplier 3 is 375*10= $3750

Total = $10,250

Now component 2

here supplier 1 has reached the limit of supply since we have ordered his maximum capacity of 650 units and his price is more than supplier 3 for suppling component 2.

Now consider supplier 3 who offers component 2 at $10. Since we have ordered 375 units for component 1 we can now order 800-375= 425 units

and supplier 2 has to supply remaining 825-425= 400 units

now the amount of money that we have to pay to supplier 3 for component 2 is 425*10 = $4250

the amount of money that we have to pay to supplier 2 for component 2 is 400*12 = $4800

Total = $9050

Now the total cost for component 1 and 2 is 10250+9050 = $ 19,300.

		SUPPLIER
Component		1	2	3
1		650	0	375
2		0	400	425
Total number of components		650	400	800
Total amount of money		650*10= $6500	400*12= $4800	800*10= 8000

Total amount of money for component 1 to supplier 1 is 6500 dollars

Total amount of money for component 1 to supplier 3 is 3750 dollars

Total amount of money for component 2 to supplier 3 is 4250 dollars

Total amount of money for component 2 to supplier 2 is 4800 dollars.

Total amount of money for all the components is 19300 dollars

I recommend the above pattern of purchase for optimum cost price.