03 Jun Question 1. Bell Computer Company Bell computers purchases IC chips from
Question
1. Bell Computer Company
Bell computers purchases IC chips from a supplier at $350/chip. The holding cost has been estimated to be 10% of purchase price. It has estimated that Bell will need 4800 chips per year. Bell operates 250 day per year. The company wants to maintain a service level of 95%. The cost placing an order is $120/order. Based on past Bell has estimated that demand during the 10 day lead time is normally distributed with a mean of 192 and a standard deviation of 10.
Given the cost of acquiring the chip an executive group has been studying the option of manufacturing the IC chip in house. Given the resources available they can build a facility with a production capacity of 30 units per day. The demand during the 15 day lead time demand is approximately normally distributed, with a mean of 288 units and a standard deviation of 20 units. Production costs are expected to be $325 per part. Setup cost for a manufacturing run is assessed at $600/setup.
For option one calculate the following:
a) What is the Economic order quantity?
b) What is the safety stock?
c) What is the reorder point?
d) What is the total cost including cost of purchasing the parts.
For option two calculate the following:
e) What is the Economic production quantity?
f) What is the safety stock?
g) What is the reorder point?
h) What is the total cost including cost of manufacturing the parts.
Which option should they choose?
2. VanOyen Manufacturing
M. P. VanOyen Manufacturing has gone out on bid for a regulator component. Expected demand is 8400 units per year. The item can be purchased from either Allen Manufacturing or Baker Manufacturing. Their price lists are shown in the table. Ordering cost is $ 50, and annual holding cost per unit is estimated to be 30% of purchase price. Vendor 1’s base price is $16 and Vendor 2’s base price is $16.10.
a) What is the Economic order quantity for each supplier?
b) What quantity should be order and which supplier should be used?
c) What is the total cost?
d) How many orders will be placed in a year?
Vendor 1
Vendor 2
Quantity
Discount
Quantity
Discount
1-499
0%
1-399
0%
500-999
3.00%
400-799
3.00%
1000+
6%
800+
6%
3. Davis Instruments
Davis Instruments has two manufacturing plants located in Atlanta, Georgia. Product demand varies considerably from month to month, causing Davis extreme difficulty in workforce scheduling. Recently Davis started hiring temporary workers supplied by workforce unlimited, a company that specializes in providing temporary employees for firms in the greater Atlanta area. WorkForce Unlimited offered to provide temporary employees under three contract options that differ in terms of the length of employment and the cost. The three options are summarized:
Option
Length of Employment
Cost
1
One month
$2,000
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