Reference no: EM132690770

Problem - Just-in-time principles - Glow Bright Co. manufactures light bulbs. Glow Bright's purchasing policy requires that the purchasing agents place each quarter's purchasing requirements out for bid. This is because the Purchasing Department is evaluated solely by its ability to get the lowest purchase prices. The lowest cost bidder receives the order for the next quarter (90 working days).

To make its bulb products, Glow Bright requires 54,000 pounds of glass per quarter. Glow Bright received two glass bids for the third quarter, as follows:

Mid-States Glass Company: $25.00 per pound of glass. Delivery schedule: 54,000 (600 lbs. × 90 days) pounds at the beginning of July to last for 3 months.

Akron Glass Company: $25.15 per pound of glass. Delivery schedule: 600 pounds per working day (90 days in the quarter).

Glow Bright accepted Mid-States Glass Company's bid because it was the low-cost bid.

Instructions -

1. Comment on Glow Bright's purchasing policy.

2. What are the additional (hidden) costs, beyond price, of Mid-States Glass Company's bid? Why weren't these costs considered?

3. Considering just inventory financing costs, what is the additional cost per pound of Mid-States Glass Company's bid if the cost of money is 10%? (Hint: Determine the average value of glass inventory held for the quarter and multiply by the quarterly interest charge, then divide by the number of pounds.)