Ross White's machine shop uses 2500 brackets during the course of a year, and this usage is relativelyconstant throughout the year. These brackets are purchased from a supplier 100 miles away for $15 each, and the lead time is 2 days. The holding cost perbracket per year is $1.50 (or 10% of the unit cost) and the ordering cost is $18.75. There are 250 working days per year. Upon hearing that Ross White is considering the producing the brackets in-house, the supplier has notified Ross that the purchase price would drop from $15 per bracket to $14.50 per bracket if Ross purchasethe brackets in lots of 1000.
Ross White's machine shop uses 2500 brackets during the course of a year, and this usage is relativelyconstant throughout the year. These brackets are purchased from a supplier 100 miles away for $15 each, and the lead time is 2 days. The holding cost perbracket per year is $1.50 (or 10% of the unit cost) and the ordering cost is $18.75. There are 250 working days per year.
Upon hearing that Ross White is considering the producing the brackets in-house, the supplier has notified Ross that the purchase price would drop from $15 per bracket to $14.50 per bracket if Ross purchasethe brackets in lots of 1000.
i) What is the total annual cost of inventory if Ross buys the brackets in lots of 1000 at $14.50 each?
ii) Given the options of purchasing the brackets at $15 each, producing them in-house at $14.80, and taking advantage of the discount, what is your recommendation to Ross White?
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