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M. P. VanOyen Manufacturing has gone out on bid for a regulator component. Expected demand is 700 units per month. 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 $5.
Allen Mgf
Baker Mfg.
Quantity
Unit Price
1-499
500-999
1,000+
$16.00
15.50
1520
1-399
400-799
800+
816.10
15.60
15.10
a) What is the economic order quantity?
b) Which supplier should be used? Why?
c) What is the optimal order quantity and total annual cost of order- ing, purchasing, and holding the component?
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