Question

Assume that two years have passed, and the purchasing agent mentioned in Problem 22 must recompute the optimal number of wafers to purchase and from which source to purchase them. Source B has decided to accept any size offer, but sells the wafers for $2.55 each for orders of up to 3,000 wafers and $2.25 each for the incremental amount ordered over 3,000 wafers. Source A still has the same price schedule, and Source C went out of business. Now which source should be used

Answer 1

Question Completion:

A purchasing agent for a particular type of silicon wafer used in the production of semiconductors must decide among three sources. Source A will sell the silicon wafers for $2.50 per wafer, independently of the number of wafers ordered. Source B will sell the wafers for $2.40 each but will not consider an order for fewer than 3,000 wafers, and Source C will sell the wafers for $2.30 each but will not accept an order for fewer than 4,000 wafers. Assume an order setup cost of $100 and an annual requirement of 20,000 wafers. Assume a 20 percent annual interest rate for holding cost calculations.

Answer:

Source B should be used.

Explanation:

a) Data and Calculations:

Total annual requirement of wafers = 20,000

Annual order setup cost = $100

Holding cost = 20% in annual interest rate

Sources of acquiring wafers:

                                                  Source A   Source B    Source C

Old offers:

Minimum units to be bought           1               3,000          4,000

Price at minimum                           $2.50        $2.40          $2.30

New offers:

Minimum units to be bought           1               3,000          out of business

Price at minimum                          $2.50         $2.55            N/A

Price after minimum                       N/A           $2.25            N/A

Total cost of goods ordered from:

Source A = $50,000 ($2.50 * 20,000)

Source B = $45,900 ($2.55 * 3,000 + ($2.25 * 17,000))

Source B should be chosen as it provides the wafers at a cheaper total price than Source A.