Question

Edwards Manufacturing Company purchases two component parts from three different suppliers. The suppliers have limited capacity, and no one supplier can meet all the company’s needs. In addition, the suppliers charge different prices for the components. Component price data (in price per unit) are as follows: Supplier Component 1 2 3 1 $10 $15 $14 2 $13 $12 $10 Each supplier has a limited capacity in terms of the total number of components it can supply. However, as long as Edwards provides sufficient advance orders, each supplier can devote its capacity to component 1, component 2, or any combination of the two components, if the total number of units ordered is within its capacity. Supplier capacities are as follows. Supplier 1 2 3 Capacity 1500 2500 2000 If the Edwards production plan for the next period includes 2,000 units of component 1 and 3,000 units of component 2, what purchases do you recommend

Answer 1

Answer:

Purchase 1,500 units of component 1 from supplier 1.

Purchase 2,000 units of component 2 from supplier 3.

Purchase 500 units of component 1 and 1,000 units of component 2 from supplier 2.

Total costs = $54,500

Explanation:

                                       component 1                      component 2

supplier                   1              2             3              1              2             3  

price                       $10        $15          $14           $13        $12          $10

capacity:

supplier 1 = 1,500

supplier 2 = 2,500

supplier 3 = 2,000  

demand:                            

• component 1 = 2,000
• component 2 = 3,000

There are two ways to solve this, one using excel and the solver function or do it manually.

Manually, we must start with the supplier that has the lowest cost. In this case, the supplier with the lowest cost for component 1 is supplier 1 ($10) and component 2 is supplier 3 ($10).

We will start by purchasing 1,500 units of component 1 from supplier 1 at $15,000. That eliminates supplier 1's capacity, so we now only have suppliers 2 and 3. We still need 500 units of component 1 and 3,000 units of component 2.

We purchase 2,000 units of component 2 from supplier 3 at $20,000. This will consume all of supplier 3's capacity, so we only have supplier 2 left. We are still needing 500 units of component 1 and 1,000 units of component 2.

We will purchase the remaining units from supplier 3 at (500 x $15) + ($1,000 x $12) = $19,500.

Our total expense will be $54,500.