Question: edison inc is an automotive company that manufactures selfdriving cars...
Edison Inc. is an automotive company that manufactures self-driving cars. These cars require a very expensive component that costs $1,800 per unit. This component should be stored in very specific conditions. Also, Edison Inc. takes very strict and costly security measures to ensure safety of the inventory of this component. Finally, due to the rapid advances in technology, this component is expected to lose its value very quickly. As a result of all of this, the holding cost per unit per year for this item is very high, $1,200. Because Edison Inc. buys 2,000 units per year from the supplier, it is one its biggest buyers. Therefore, and to make Edison Inc. happy, the supplier pays delivery costs. As a result, the ordering cost is $400 per order.
Answer questions 17 to 20 based on the above information.
17. Edison Inc. is using EOQ for this component. How much is its total inventory cost?
18. Given the risks associated with holding this component, the supplier wants to motivate Edison Inc. to buy in larger quantities. Therefore, it offers a 3% discount on the item price if Edison Inc. buys the item in lot sizes of 300 units or more. If Edison Inc. decides to accept this offer, how many units should it buy in each order? (We call this quantity Q*)
19. If Edison Inc. decides to order Q* in each order instead of EOQ, how much will its total inventory cost be?
20. Based on your analysis, do you suggest that Edison Inc. accepts the discounted price and order Q*?