Mack's Manufacturing Company needs to source a principal components for a new product it has developed. Two possible suppliers, A and B, have been identified. Each supplier offers a different (all-units) discount for the component, as indicated in the table below. The discount is based on the number of units ordered each time an order is placed. The expected annual demand for the component is 8480 units. The annual inventory holding cost is 25% of the price of the component, and it costs $39 each time an order is placed. Orders must be placed in whole-number units. (Use an EOQ-based analysis with quantity discount to answer this question. Round fractional EOQ values to the nearest integer.) (You are not required to show your work; however, you must answer each question and provide explanation/justification when asked.)
SUPPLIER A SUPPLIER B
Quantity Unit Price Quantity Unit Price
1-249 $14.00 1-199 $13.90
250-499 13.80 200-999 13.75
500 + 13.60 1000 + 13.55
Be sure to answer all 3 parts of this question.
a. If supplier A were to be used, what would be the optimal order quantity (under the quantity discount), and what would be the corresponding minimum total annual cost (including purchase cost)?
b. If supplier B were to be used, what would be the optimal order quantity (under the quantity discount), and what would be the corresponding minimum total annual cost (including purchase cost)?
c. Which supplier should be used? Explain.
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