Question

The suppliers have limited capacity, and no one supplier can meet all the company's needs. In addition, the suppliers charge different prices for the components. Component price data (in price per unit) are as follows:

Supplier
Component 1 2 3
1 $10 $12 $14
2 $10 $10 $11
Each supplier has a limited capacity in terms of the total number of components it can supply. However, as long as Edwards provides sufficient advance orders, each supplier can devote its capacity to component 1, component 2, or any combination of the two components, if the total number of units ordered is within its capacity. Supplier capacities are as follows:
Supplier 1 2 3
Capacity 600 1050 775
1. If the Edwards production plan for the next period includes 1000 units of component 1 and 800 units of component 2, how many units of each component (C1, C2) should be ordered from each supplier (S1, S2, S3)?
2. What is the total purchase cost for the components?

Answer 1

Edwards

1. Units of each component (C1, C2) that should be ordered from each supplier (S1, S2, S3) are:

Supplier S1 S2 S3 Total

Capacity 600 1050 775

Orders:

C1 600 400 1,000

C2 650 150 800

Total 600 1,050 150 1,800

2. The total purchase cost for the components is:

= $18,950

Step-by-step explanation:

a) Data and Calculations:

Component Price Data:

Component Supplier

1 2 3

1 $10 $12 $14

2 $10 $10 $11

Supplier 1 2 3

Capacity 600 1050 775

Requirements:

Component Units

1 1,000

2 800

Supplier 1 for C1 = 600 * $10 = $6,000

Supplier 2 for C 1 = 400 * $12 = 4,800

Supplier 2 for C2 = 650 * $10 = 6,500

Supplier 3 for C2 = 150 * $11 = 1,650

Total purchase cost = $18,950

Supplier S1 S2 S3 Total

Capacity 600 1050 775

Orders:

C1 600 400 1,000

C2 650 150 800

Total 600 1,050 150 1,800