Use the following to answer the questions below.
The Steele Bike Company assembles bicycles for a major retail toy outlet.The main purchase is bicycle frames for making these bicycles.Dan Steele,the owner,wants to locate a low-cost supplier for the frames used in this assembly operation.The supplier will be selected based on total annual cost to supply Steele's needs.Annual requirements are for 100,000 frames,and the company operates 200 days a year.Two suppliers,Acme and State,have quoted the same price for the frames,but quantities,lead times and shipping costs are considerably different.The following data are available for the two suppliers.

-Refer to the instruction above.How many shipments per year are required if State is the supplier selected?
A)13.3
B)40
C)200
D)10

Question

Use the following to answer the questions below.
The Steele Bike Company assembles bicycles for a major retail toy outlet.The main purchase is bicycle frames for making these bicycles.Dan Steele,the owner,wants to locate a low-cost supplier for the frames used in this assembly operation.The supplier will be selected based on total annual cost to supply Steele's needs.Annual requirements are for 100,000 frames,and the company operates 200 days a year.Two suppliers,Acme and State,have quoted the same price for the frames,but quantities,lead times and shipping costs are considerably different.The following data are available for the two suppliers.
 
-Refer to the instruction above.How many shipments per year are required if State is the supplier selected?
A)13.3 
B)40 
C)200 
D)10

Quizplus · Accepted Answer

If State is selected as the supplier, the minimum order quantity is 500 frames and the lead time is 5 days. This means that for an annual requirement of 100,000 frames, 200 orders of 500 frames each are required. Thus, the total number of shipments required is 200. On the other hand, if Acme is selected, the minimum order quantity is 1,000 frames and the lead time is 15 days. This means that for an annual requirement of 100,000 frames, 100 orders of 1,000 frames each are required. Thus, the total number of shipments required is 100. Therefore, State is the better choice as it results in fewer shipments and hence lower shipping costs.

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