Inventory Management : Danny Steel Inc., fabricates various products from two basic inputs, bar stock and sheet stock. Bar stock is used at a steady rate of 1,000 units per year and costs $200 per bar. Sheet stock is used at a rate of 500 units per year and cost $150 per sheet. The company uses a 20 percent annual holding cost rate, and the fixed cost to place an order is $50, of which $10 is the cost of placing the purchase order and $40 is the fixed cost of a truck delivery. The variable (i.e. per unit charge) trucking cost is included in the unit price. The plant runs 365 days per year.
a) Compute the optimal order quantities for bar stock and sheet stock.
b) Compute the annual cost (holding plus order) for bar stock and sheet stock in two different situations: I . No chance to share trucks ; II . S heet stock orders always overlap with bar stock orders and there is no trucking cost for sheet stock. (Note: do not consider the unit cost in your calculations).
c) Suppose it is possible to share trucks for bar stock and sheet stock. The manager changed the order interval for bar stock and sheet stock to 14 days and 28 days respectively. Compute the annual cost (holding plus order) based on the new order intervals.