1) Markland Manufacturing intends to increase capacity by overcoming a bottleneck operation by adding new equipment. Two vendors have presented proposals. The fixed costs for proposal A are $50,000, and for proposal B, $70,000. The variable cost for A is $12.00, and for B, $10.00. The revenue generated by each unit is $20.00.
a) What is the break-even point in units for proposal A?
b) What is the break-even point in units for proposal B?
2) Southeastern Bell stocks a certain switch connecter at its central warehouse for supplying field service offices. The yearly demand for these connectors is 15,000 units. Southeastern estimates its annual holding cost for this item to be $25 per unit. The cost to place and process an order from the supplier is $75. The company operates 300 days per year and the lead time to receive an order from the supplier is 8 working days.
a) Find the economic order quantity.
b) Find the annual holding costs.
c) Find the annual ordering costs.
d) What is the reorder point?
The solution shows how to find the break even point, economic order quantity, as well as the reorder point for Markland Manufacturing and Southeastern Bell stocks.