Mcleavey Manufacturing has a demand for 1,000 pumps each year. The company outsources her production by ordering outside supplier, unit purchase price is 60$/ unit. Mc Leavey Manufacturing has to rent warehouse 10% of unit cost per year. And Mc Leavey Manufacturing pays for investment cost of 10% of unit cost per year. For ordering, the company must pay 50$/ order.
a. What do you recommend if Mc Leavey Manufacturing get discount from his vendor with below schemes:
Order quantity: discount price
Less than 150 pumps: 5% discount rate
More than 150 pumps: 10% discount rate
b. If the company has plan to produce by themself then what is optimal production quantity? (given that they have production rate is 1500 units/year and setup cost is 100$).
c. What is the optimal total annual inventory cost if they produce?
