Danny Steel Inc. fabricates various products from two basic inputs, bar stock and sheet stock. Bar stock is used at a steady rate of 1000 units per year and costs $200 per bar. Sheet stock is used at a rate of 500 units per year and costs $150 per sheet. The company uses a 20% 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 plant run 365 days per year.
a) Determine EOQ and optimal order intervals, and annual costs for bar stock and sheet stock. What fraction of the total annual cost consist of fixed trucking cost?
b) Using a week (7 days) as a base period, round the orders to nearest power of 2. If you charge the fixed trucking fee only once for deliveries that coincide what is the annual cost now?
c) Leave the order quantity for the bar stock as in part (b), but reduce the order interval for sheet stock to match that of bar stock. Recompute the total annyal cost and compare to part (b).