Problem 7 SECOND REQUEST---MUST SHOW ALL WORK Chapter 14: The Burdell Wheel and
ID: 2762881 • Letter: P
Question
Problem 7 SECOND REQUEST---MUST 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
Evaluation of Supplier using Total Cost Analysis Lexington Tire Irmo Auto Annual Demand a 25000 25000 Order Size b 2000 1500 No of orders c = a/b 13 17 Average Inventory d = b/2 1000 750 Price/tire e $41.00 $40.00 Holding Cost f $8.20 $8.00 Product Cost g = a*e $1,025,000.00 $1,000,000.00 Total Shipping Cost h $18,000.00 $22,000.00 Total Holding Cost i = d*g $8,200.00 $6,000.00 Admin Cost j $14,000.00 $18,000.00 Total Cost g+h+i+j $1,065,200.00 $1,046,000.00 Burdell should choose Irmo Auto as the total cost is lower for that supplier to the tune of $19,200