Beruflich Dokumente
Kultur Dokumente
Piston
Gears R' Us Kingdom
Annual material cost 117000000 112320000
Average cycle inventory 50 500
Annual cost of holding cycle inventory 50000 480000
Standard deviation of demand during lead time 87.46427842 1807.795619
Safety inventory required 143.8659356 2973.559181
Annual cost of holding safety inventory 143865.9356 2854616.813
Annual cost 117193865.9 115654616.8
b. Table 2 shows the total annual cost if all the three offers can be put into effect. Based from the
table, the annual cost would be $113,425,920.
Table 2. Total Annual Cost if all three options could be put into effect.
Annual Material Cost $ 112,320,000.00
Annual Cost of Holding Cycle Inventory $ 384,000.00
Annual Cost of Safety Inventory $ 721,920.00
Total Annual Cost $ 113,425,920.00
c. Based from the calculated values presented from Table 1 and 2, Mr. De Leon must still choose
Piston Kingdom as the supplier, however, he must choose the third offer which is to reduction of
standard deviation of lead time to 1 week. Choosing the third offer will decrease the total annual
cost by $ 2,094,720.00.