A machine shop buys nuts and bolts from the same supplier. The nuts cost 10 cents each and the screw cost 25 cents each. A setup cost of $100 is assumed for all orders. Holding cost are based on a 20 percent annual interest rate. The shop uses an average of 15.000 nuts and 12.000 screws annually.
a) Determine the optimal size of the orders of nuts and screws and the optimal time between placements of orders of these two items.
b) If both items are ordered and received simultaneously, the setup cost of $100 applies to the combined order. Compare the average annual cost of holding and setup if these items are ordered separately; if they are both ordered when the nuts would normally be ordered; and if they are both ordered when the screws would normally be ordered.
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