Reference no: EM13153626

Joe's Car Company can make its own engines for $1050 or buy them from the outside from a defunct Yugoslavian auto plant for $1000 per engine. Inventory holding cost is $800 per engine per year, and the cost of ordering, receiving etc. is $8000 per order. Joe needs 500 engines per year at a constant rate
a) What is Joe's EOQ for purchasing engines from the outside?

b) With this order size, what is the total cost of ordering, storing and purchasing engines from the outside?

c) Suppose Joe's company makes the engines instead. By coincidence, the setup cost for each production run is the same as the cost of processing an order, $8000. Joe's engineers have designed a project for making engines on site at the rate of 2000 per year. Usage rate would continue to be at 500 per year. What would the economic run size be?

d) Manufacturing engines will cost $1050/engine. What is the total cost including holding and startup?

e) Mary, a close friend of Joe's, just finished a course in Operations Management at UPM, suggests to Joe that he should fire some of the engineers and manufacture engines at a more conservative rate of 530 per year. What would the economic run size be in this case?

f) What is the total cost of manufacture, inventory and startups for Mary's scheme?

g) How does Mary's "classroom knowledge on Operations Management" plan relate to Just-in-Time, Pull-Push Systems and Make versus Buy decisions? (Answer in the form of a short essay).