Question

John Deere Irrigation has summarized the price list from four potential suppliers of an underground valve given in the table below. Monthly usage is 200 valve, order cost is `10 per order and annual inventory holding cost are `3.33 per unit. Which vendor should be selected and what order quantity is best if john Deere Irrigation wants to minimize total cost?

Answer 1

Explanation:

Let's consider an order quantity of 200 at a price point of 31.15 for vendor A

Inventory holding cost = Q/2 * H = 200 / 2 * 2.15 = 215

Number of orders per year = D/Q = 700/200 = 3.5 orders

Annual cost of ordering = $2.15 * 3.5 = $7.5

Actual cost = 700 * 31.15 = 21,805

Total cost = annual cost + Inventory cost + Actual cost

= 7.5 + 215 + 21,805 = 22,027.5

For an order quantity of 400

Inventory...