Question

Brite Lite Inc. manufactures light bulbs. Their 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 bidder receives the order for the next quarter (90 working days). To make its bulb products, Bright Lite requires 45,000 pounds of glass per quarter. Brite Lite received two glass bids for the third quarter, as follows:
• Mid-States Glass Company: $ 28.00 per pound of glass. Delivery schedule: 45,000 (500 lbs. × 90 days) pounds at the beginning of July to last for 3 months.
• Cleveland Glass Company: $ 28.20 per pound of glass. Delivery schedule: 500 pounds per working day (90 days in the quarter).
Brite Lite accepted Mid-States Glass Company’s bid because it was the low-cost bid.

Instructions
1. Comment on Brite Lite’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 annual cost of money is 10%?



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  • CreatedJune 27, 2014
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