PROBLEM 1

Thaarugo Inc produces a GPS device that is becoming popular in parts of Scandinavia. When Thaarugo produces one of these, a printed circuit board (PCB) is used and it is populated with several electronic components. Thaarugo determines that it needs about 16,500 of this type of PCB each year. Demand is relatively constant throughout the year and the ordering cost is about $20/ order; the holding cost is 25% of the price of each PCB. Two companies are competing to become the dominant supplier of PCB, and both have offered quantity discounts as shown in the following table.

REMEMBER TO EXPLICITLY WRITE THE FORMULAS USED AND THE VALUE FOR EACH VARIABLE.

Which of the two suppliers should be selected if Thaarugo wishes to minimize total annual inventory costs? Explain.

Supplier A- Quantity	Supplier A Price	Supplier B- Quantity	Supplier B Price
1-199	$37.50	1-99	$40
200-699	$36.85	100-499	$36.25
700 or more	$35.50	600 or more	$36.70

PROBLEM 2

Current decision to buy: Ross White's machine shop uses 300 brackets each month during the course of a year. This usage is relatively constant throughout the year. Currently, these brackets are purchased from a supplier 100 miles away for $25 each and the lead time is 2 days. The holding cost per bracket per year is $3.75 (15% of the unit cost) and the annual ordering cost per order is $18.50. There are 240 working days per year.

Possible future decision to make in-house: Ross White is reconsidering his decision of buying the brackets and is considering making the brackets in-house. He has determined the set up costs would be $22.50 in machinist time and lost production time. Forty eight brackets could be produced in a day once the machine has been set up. Ross estimates that the cost (including labor and materials) of producing one bracket would be $22.85. The holding cost would be 12% of the cost.

a. What is the EOQ given Ross' current decision to buy the brackets? What is the total annual cost?

b. If Ross wants to start making the brackets in-house, what is the optimal production quantity? What is the total annual cost?

c. Based on ALL the information you have, which decision should Ross make and why?