Total Cost Supplier 1 Supplier 2
Problem 16-12 (Algo)
Your company assembles five different models of a motor scooter that is sold in specialty stores in the United States. The company uses the same engine for all five models. You have been given the assignment of choosing a supplier for these engines for the coming year. Due to the size of your warehouse and other administrative restrictions, you must order the engines in lot sizes of 1,350 units. Because of the unique characteristics of the engine, special tooling is needed during the manufacturing process for which you agree to reimburse the supplier. Your assistant has obtained quotes from two reliable engine suppliers and you need to decide which to use. The following data have been collected:
| Requirements (annual |
16,200 | units | |
| Weight per engine | 25 | pounds | |
| Order |
$ | 150 | per order |
| Inventory carry cost | 20 | percent of the average value of inventory per year | |
Note: Assume that half of lot size is in inventory on average (1,350/2 = 675 units).
Two qualified suppliers have submitted the following quotations:
| ORDER QUANTITY | SUPPLIER 1 UNIT PRICE |
SUPPLIER 2 UNIT PRICE |
||||
| 1 to 1,499 units/order | $ | 590 | $ | 588 | ||
| 1,500 to 2,999 units/order | 586 | 588 | ||||
| 3,000 + units/order | 584 | 582 | ||||
| Tooling costs | $ | 27,500 | $ | 23,800 | ||
| Distance | 120 miles | 100 miles | ||||
Your assistant has obtained the following freight rates from your carrier:
| Truckload (40,000 lbs. each load): | $0.80 per ton-mile |
| Less-than-truckload: | $1.20 per ton-mile |
Note: Per ton-mile = 2,000 lbs. per mile.
Total Cost
Supplier 1
Supplier 2
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