Case Problem 1: Wagner Fabricating Company 1. Holding Cost Cost of capital14. 0% Taxes/Insurance (24,000/600,000) 4. 0% Shrinkage (9,000/600,000) 1. 5% Warehouse overhead (15,000/600,000) 2. 5% Annual rate22.
0% 2. Ordering Cost 2 hours at $28. 00$56. 00 Other expenses (2,375/125) 19. 00 Cost per order$75. 00 3.
Set-up Cost 8 Hours at $50. 00 $400 per set-up 4. & 5. a.
Order from Supplier - EOQ model Ch = IC = 0. 22 ($18. 00) = $3. 96 [pic]units Number of orders = D/Q = 9.
19/year Cycle time = 250(Q) / D = 250(348. 16) / 3200 = 27. 2 days Reorder Point:P(Stockout) = 1 / 9. 19 = 0.
1088 r = 64 + 1. 24(10) = 76. 4 Safety stock = 76. 4 - 64 = 12. 4 Maximum inventory = Q + 12. 4 = 360.
56 Average inventory = Q/2 + 12. 4 = 186. 48 Annual holding cost = 186. 48(3. 96) = $738.
46 Annual ordering cost = 9. 19(75) = $689. 35 Purchase cost = 3200($18) = $57,600 Total annual cost = $59,027. 81 b. Manufacture - Production lot size model Ch = IC = 0.
22($17. 00) = $3. 74 P = 1000(12) = 12,000/year Note: The five-month capacity of 5,000 units is sufficient to handle annual demand of 3,200 units. [pic] Number of production runs = D/Q = 3.
1/year Cycle Time = 250(Q) / D = 250(966. 13) / 3200 = 75. 48 days Reorder point: P(Stockout) = 1 / 3. 31 = 0. 3021 r = 128 + 0. 52(20) = 138.
4 Safety stock = 138. 4 - 128 = 10. 4 Maximum inventory = (1 - 3200/12000)966. 13 + 10. 4 = 718.
89 Annual holding cost = (354. 25 + 10. 4)(3. 74) = $1363.
79 Annual set up cost = 3. 31(400) = $1363. 79 Manufacturing cost = 3200($17) = $54,400 Total Annual Cost = $57,088. 67 6. Recommend manufacturing the part Savings: $59,027.
81 - 57,088. 67 = $1,939. 14 (3. 3%) ----------------------- [pic] [pic]
