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]