The recent success of Southwestern University's football program is causing SWU's president, Joel Wisner, more problems than he faced during the team's losing era in the early 1990s. For one thing, increasing game-day attendance is squeezing the town of Stephenville, Texas and the campus. Complaints are arising over parking, seating, concession prices, and even a shortage of programs at some games. Dr. Wisner, once again, turns to his stadium manager, Hank Maddux. This time, he needs a guaranteed revenue stream to help fuel the stadium expansion. One source of income could easily be the high-profit game programs.
Selling for $6 each, programs are a tricky business. Under substantial pressure from Wisner, Maddux knows he has to ensure that costs are held to a minimum and contribution to the new expansion maximized. As a result, Maddux wants the programs for each game to be purchased economically. His inquiries have yielded two options. A local Stephenville printer, Sam Taylor of Quality Printing, has offered the following discount schedule for the programs and game inserts:
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As a second option, however, First Printing, owned by Michael Shader, an S.W.U. alumnus in Ft. Worth, will do the job for 10% less as a favor to help the athletic department. This option will mean sending a truck to Ft. Worth to pick up each order. Maddux estimates that the cost of each trip to Ft. Worth will be $250.
Maddux figures that the university's ordering/check-writing cost is about $100. His carrying cost is high because he lacks a good place to store the programs. He can't put them in the office or store them down in the maintenance department where they may get dirty and damaged. This means he will need to lease space in a storage area off-campus and transport them to and from the campus. He estimates annual holding costs at $0.10 per unit.
Maddux's other major problem is he is never sure what the demand for programs will be. Sales vary from opponent to opponent and how well the team is doing that year. However, he does know that running out is a very bad idea. This football team is not only expected to make money for SWU, but it is also entertainment. This means programs for all who want them. With the new facility, attendance could be 60,000 for each of the five home games. And two of every three people buy a program. In addition to the programs, Maddux must purchase the inserts for the programs. The holding cost for the inserts is estimated to be $0.01 per unit per year. The other costs and the same discount schedule apply, but the inserts only cost half as much because they are much smaller. First Printing will give the same 10% discount on the inserts.
QUESTIONS:
1. For the programs, what are the EOQ's for both printing companies? How many orders of each size will be needed?
2. For the inserts, what are the EOQ's for both printing companies? How many orders of each size will be needed?
3. Using the EOQ's above and volume order information provided, what will be the cost of the programs and inserts if they are purchased from Quality Printing
4. Using the EOQ's above and volume order information provided, what will be the cost of the programs and inserts if they are purchased from First Printing.