Narragansett Yacht Company

1771 words 8 pages
1. What is the economic order quantity for standard 5-inch winches if they are ordered from (a) Supplier A, and (b) Supplier B? Round your answers up to the next whole unit, because Narragansett cannot order a fraction of a winch.

EOQ = square root of ( 2 x R x A) V x W

R = annual demand is 1500 units A = ordering cost is $1,000 for Supplier A and $500 for Supplier B V = cost per unit is $300 W = carrying cost percentage is 23%

Supplier A: EOQ = Square root of (2 x 1500 x $1,000) = S.R. of 3,000,000 = 209 ($300 x 23%) 69

Supplier B: EOQ = Square root of (2 x 1500 x $500) =
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Suppose Supplier A, the current supplier, offers a 2% discount on the $300 per-unit purchase price on orders of 250 or more units. In an attempt to win the contract, Supplier B is also offering a 2% discount on order of 250 or more. Should Narragansett take the quantity discount from Supplier A? (In answering this question, assume that Narragansett holds a 75-unit safety stock)

Total Inv. Cost = [(Carrying Cost)(Discounted Cost Per Unit)(Minimum Order/2)] + [(Fixed Cost)(Usage/Minimum Order)]

TIC Supplier A: [(23%)($294)(250/2)] + [($1000)(1500/250)] = $14,452.50

TIC Supplier B: [(23%)($294)(250/2)] + [($500)(1500/250)] = $11,452.50

Safety stock is the same for Suppler A & B …

Safety Stock = (23%)(75)(294) = $5,071.50

Add TIC and Safety Stock …

Total for Supplier A: $14, 452.50 + $5,071.50 = $19,524

Total for Supplier B: $11,452.50 + $5,071.50 = $16,524

Narragansett should take the discount from Supplier B. They would save $3,000.

9. What are some methods that Narragansett might use to control the inventory of 5-inch winches? That is how can it keep track of the number of units in stock and then be sure an order is placed when the order point is reached?

-They can use the just-in-time method. -There is the 2-bin system, this system uses two bins of materials. When one bin is empty, it's time to re-order. -Universal Product Code (UPC), gives Narragansett the ability to track and count the

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