Question

Chris Sandvig Irrigation, Inc., has summarized the price list from two potential suppliers of an underground control valve. See the table below. Annual usage is 1,100 valves; order cost is $9 per order; and annual inventory holding costs are $5.25per unit.

Vendor !		Vendor 2
quantity	price	quantity	price
1-49	$34.5	1-149	$34.25
50-149	33.75	150-299	33.00
150+	31.10	300+	31.00

a. what is the optimal order quantity for each vendor

(vendor 1)

(vendor 2)

b. form which vendor should we order? Show the minimum total cost of each vendor.

Answer 1

Annual demand D = 1100

Order cost S = 9

Holding cost H = 5.25

Economic order quantity Q

Q = 61.41 or 61 units

Now we calculate total cost at Q = 61, 150 units for vendor 1 and 61, 150 and 300 units for vendor 2

Total cost = Purchase cost +Annual holding cost + Annual ordering cost =(PD) +(Q/2)H +(D/Q)S

a) Optimal order quantity for vendor 1 = 150

Optimal order quantity for vendor 2 = 300

b) We should order from Vendor 1

Vendor 1 minimum cost = 34669.75

Vendor 2minimum cost = 34920.5