Question

Suppose you find another supplier, Supplier B, before you sign the purchase contract with Supplier A. If you buy hoodies from Supplier B, you place only one order per year with an order size of the entire annual demand of 1,200. Supplier B offers a lower price of $30 per hoodie and a fixed cost of $11,000 for delivery. Assume the annual holding cost for each hoodie is still 20% of the wholesale price.

Required:
How much of a $ savings does Suppler B offer vs Supplier A?

Answer 1

The correct solution is "$3600".

Step-by-step explanation:

The given values are:

Order size,

Q = 1,200

Purchase Price,

P = $30

Ordering cost,

S = $11,000

Holding cost,

H =
`0.2* 30`

=
`6` ($)

Now,

The total cost will be:

=
`Purchase \ cost+Total \ Holding \ cost+Total \ Ordering \ cost`

On substituting the values, we get

=
`(30* 1200)+((1200)/(2) )* 6+11000`

=
`36000+3600+11000`

=
`50600` ($)

hence,

The savings by selecting supplier B over supplier A will be:

=
`54200-50600`

=
`3600` ($)