The Burdell Wheel and Tire Company assembles tires to wheel rims for use on cars during manufacture of vehicles by the automotive industry. Burdell wants to locate a low-cost supplier for the tires he uses in his assembly operation. The supplier will be selected based on total annual cost to supply Burdell's needs. Burdell's annual requirements are for 25,000 tires, and the company operates 250 days a year. The following data are available for two suppliers being considered.
|
SUPPLIER
|
SHIPPING QUANTITY PER SHIPMENT
|
ANNUAL
SHIPPING COSTS
|
PRICE / TIRE (p)
|
INVENTORY HOLDING COSTS (H)
|
LEAD TIME (DAYS)
|
ADMIN. COSTS
|
|
LEXINGTON TIRE
|
1,500
|
$18,000
|
$30
|
$6.00
|
6
|
$15,000
|
|
IRMO
AUTO
|
1,200
|
$25,000
|
$29
|
$6.80
|
5
|
$18,000
|
What are the annual inventory costs if the lower inventory cost supplier is selected?
A) Less than or equal to $7,000
B) More than $7,000 but less than or equal to $7,500
C) More than $7,500 but less than or equal to $8,000
D) More than $8,000