Use total cost analysis to determine

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Reference no: EM131102108

Given the following information, use total cost analysis to determine which supplier is more cost-effective. Late delivery of raw material results in 60 percent lost sales and 40 percent back orders if finished goods.

Order lot size	1000
Requirements (annual forecast)	120000 units
Weight per engine	22 pounds
Order processing cost	125/ Order
Inventory caring rate	20% per year
Cost of working capital	10% per year
Profit margin	15%
Price of finished goods	$4500
Back order cost	$15 per unit

Unit price	Supplier 1	Supplier 2
1 to 999 units/order	$50	$49.50
1000 to 2999 units/order	$49	$48.50
3000+units/order	$48	$48
Tooling cost	$12000	$10000
Terms	2/10,net 30	1/10, net 30
Distance	125 miles	100 miles
Supplier Quality Rating	2%	2%
Supplier Delivery Rating	1%	2%

Truckload (TL >=40,000 lbs.): $0.85 per ton mile

Less than truckload (LTL): $1.10 per ton mile

Note: per ton mile= 2000lbs per mile; number of days per year= 365

Reference no: EM131102108

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