Problem 6 Question Help Wanda Lux must select a supplier for a plastic bottle an
ID: 363277 • Letter: P
Question
Problem 6 Question Help Wanda Lux must select a supplier for a plastic bottle and proprietary dispenser for its new hair shampoo. Three suppliers have placed bids; at Wanda's request, all bids are for a shipping quantity (Q) of 20,000 bottles with annual requirements (D) of 40,000 units. Wanda's factory operates 250 days a year. The following table shows each supplier's price, estimated annual freight costs, and current lead times; management has added estimates for holding costs and administrative oversight costs for each supplier Supplier Dover Plastics Evan & Sons Farley, Inc Freight Price/Unit Annual Holding Lead Time Annual Administrative Costs $3,500 $4,500 $4,000 Cost/Unit (H) $1.02 $1.01 $1.03 Costs $6.000 $5,000 $3,000 (L) (days) $5.10 $5.05 $5.15 17 18 a. Which of the three suppliers will provide the lowest annual cost to Wanda Lux? Using | | is the lowest cost alternative, with annual total costs to Wanda Lux of $1 . (Enter your response rounded to the nearest whole number.)Explanation / Answer
The number of shipments in a year = 40000 demand / 20000 shipment size = 2
Also , Holding cost during Lead time = ( Annual holding cost per unit / 250 days) x Lead time x annual demand
Thus, Total cost for any supplier
= Freight cost x 2 ( i.e. number of annual shipments) + Price / unit x 40,000 ( i.e. annual demand) + Holding cost during lead time + annual administrative cost
Thus,
Total cost for Dover Plastics
= $3500 x 2 + $ 5.10 x 40,000 + $ 1.02/250 x 15 x 40,000 + $6000
= $7000 + $204000 + $2448 + $6000
= $219448
Total cost for Evan & Sons
= $4500 x 2 + $5.05 x 40,000 + $1.01/250 x 17 x 40,000 + $5000
= $9000 + $202,000 + $2747.20 + $5000
= $218747.20
Total cost for Farley Inc
= $4000 x 2 + $5.15 x 40000 + $1.03/250 x 18 x 40,000 + $3000
= $8000 + $206000 + $2966.40 + $3000
= $219966.40
USING EVAN & SONS IS THE LOWEST COST ALTERNATIVE , WITH ANNUAL TOTAL COST TO WANDA LUX OF $ 218747
Therefore, Wanda should award the contract to Evan & Sons for being the lowest cost alternative
USING EVAN & SONS IS THE LOWEST COST ALTERNATIVE , WITH ANNUAL TOTAL COST TO WANDA LUX OF $ 218747