Question

5,000 10,000 or 15,000 for drop box 2

EQuestion Help Problem 2 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) Price/Unit Annual Holding Cost/Unit (H) 0.78 S0.76 Lead Time (L) Annual Administrative Cost $4,500 4,000 Supplier 5,000 10,000 5,000 Sharps $4,800 $3,400 $2,900 Winkler S5,200 3,700 $3,400 S3.80 $3.90 Which supplier and which shipping quantity will provide the lowest costs for Eight Flags? ▼ and a shipping quantity of ▼ is the lowest cost alternative, with annual total costs to Eight Flags of $ Enter your esponse as an integer. Sharps Winkler

Answer 1

Since Lead Time is in week, we will have to find the weekly demand as well to calculate the demand during the lead time.

Weekly Demand d = 30000/50 = 600

We will find the total cost for each alternative -

Formula for Total Annual Cost is as mentioned below -

Total annual cost = Material costs + Freight cost + Inventory cost + administrative costs

TC = p*D + Freight costs + (Q/2 + dL)H + Administrative costs

First of all, we will find the total cost at quantity 5000, 10000, 15000 for Supplier Sharps

TC (Q = 5000) = 30000*3.90 + 4800 + ((5000/2)+(600*3))*0.78 + 4500 = 129654

TC (Q = 10000) = 30000*3.90 + 3400 + ((10000/2)+(600*3))*0.78 + 4500 = 130204

TC (Q = 15000) = 30000*3.90 + 2900 + ((15000/2)+(600*3))*0.78 + 4500 = 131654

Total cost at quantity 5000, 10000, 15000 for Supplier Winkler

TC (Q = 5000) = 30000*3.80 + 5200 + ((5000/2)+(600*4))*0.76 + 4000 = 126924

TC (Q = 10000) = 30000*3.80 + 3700 + ((10000/2)+(600*4))*0.76 + 4000 = 127324

TC (Q = 15000) = 30000*3.80 + 3400 + ((15000/2)+(600*4))*0.76 + 4000 = 128924

From Above, Winkler with order quantity 5000 provide the lowest cost. Cost will be 126924.