Answer:
I will take Supplier A and make orders of 500 units as give lower inventory cost
From the proposed units the best option to inimize cost is 500 units.
Explanation:
Supplier A Supplier B
1 –199 $14.00 1–149 $14.10
200–499 13.80 150–349 13.90
500+ 13.60 350 + 13.70
Holding Cost 25% of the unit price.
D = annual demand =
800 monthly x 12 month = 9,600 per year
S= setup cost = ordering cost = 40
H= Holding Cost = $13.60 x 25% = 3.40
Optimal Order Quantity
taking $13.60 (order size must be over 500)
OOQ: 475.2708206
As it is below the 500 to get the $13.60 price is not a cost minimizing option but, it can be better than the alternative
Ordering 9600 / 500 x $40 = $768
Holding: 500/2 x $13.60 x 25% = $850
Total $ 1,618
Using Supplier B of $13.70 (reqirement order size +350)
H= Holding Cost = 13.70 x 25% = 3.43
OOQ = 473.5330787
This order size will minimize the inventory cost.
Ordering 9600 / 474 x $40 = $810
Holding: 474/2 x $13.70 x 25% = $812
Total $ 1,622
<em><u>Given cases: </u></em>
Ordering 9600 / 150 x $40 = $2,560
Holding: 150/2 x $14.00 x 25% = $262.5
Total $ 2,822.5
Ordering 9600 / 500 x $40 = $768
Holding: 500/2 x $13.60 x 25% = $850
Total $ 1,618
Ordering 9600 / 200 x $40 = $1,920
Holding: 200/2 x $13.80 x 25% = $345
Total $ 2,265
Ordering 9600 / 350 x $40 = $1,097
Holding: 350/2 x $13.70 x 25% = $599
Total $ 1,696
Ordering 9600 / 300 x $40 = $1280
Holding 300/2 x $13.80 x 25% = $517.5
Total $1797.5