Problem 7 SHOW ALL WORK Chapter 14: The Burdell Wheel and Tire Company assembles
ID: 2758964 • Letter: P
Question
Problem 7 SHOW ALL WORK
Chapter 14: The Burdell Wheel and Tire Company assembles tires to wheel rims for use on cars during manufacture of vehicles by the automotive industry. Burdell wants to locate a low-cost supplier for the tires he uses in his assembly operation. The supplier will be selected based on total annual cost to supply Burdell’s needs. Burdell’s annual requirements are for 25,000 tires, and the company operates 250 days a year. The following data are available for two suppliers being considered.
Supplier
Shipping Quantity
Annual Shipping Costs
Price /unit
Annual Holding Cost/unit
Lead Time (days)
Annual Administrative Cost
Lexington Tire
2,000
$18,000
$41
$8.20
7
$14,000
Irmo Auto
1,500
$22,000
$40
$8.00
5
$18,000
Using the Total Cost Analysis for Supplier Selection, which supplier should Burdell choose? Provide details to justify your answer.
Supplier
Shipping Quantity
Annual Shipping Costs
Price /unit
Annual Holding Cost/unit
Lead Time (days)
Annual Administrative Cost
Lexington Tire
2,000
$18,000
$41
$8.20
7
$14,000
Irmo Auto
1,500
$22,000
$40
$8.00
5
$18,000
Explanation / Answer
Ans: Irmo Auto is the low cost supplier Details Lexington Tire Irmo Auto Differential Cost Price 10,25,000.00 10,00,000.00 25,000.00 Annual Shipping Cost 18,000.00 22,000.00 -4,000.00 Annual Holding Cost 2,05,000.00 2,00,000.00 5,000.00 Annual Administrative Cost 14,000.00 18,000.00 -4,000.00 Total 12,62,000.00 12,40,000.00 22,000.00