Question: HD Hogg Motorcycle Company manufactures a variety of motorcycles Hogg s

HD Hogg Motorcycle Company manufactures a variety of motorcycles. Hogg’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 days). To make its motorcycles, Hogg requires 4,500 frames per quarter. Hogg received two frame bids for the third quarter, as follows:
• Famous Frames, Inc.: $ 301 per frame. Delivery schedule: 50 frames per working day (90 days in the quarter).
• Iron Horse Frames Inc.: $ 300 per frame. Delivery schedule: 4,500 (50 frames × 90 days) frames at the beginning of July to last for three months. Hogg accepted Iron Horse Frames Inc.’s bid because it was the low- cost bid.

1. Comment on Hogg’s purchasing policy.
2. What are the additional (hidden) costs, beyond price, of Iron Horse Frames Inc.’s bid? Why weren’t these costs considered?
3. Considering just inventory financing costs, what is the additional cost per frame of Iron Horse Frames Inc.’ s bid if the annual cost of money is 12%?

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  • CreatedJune 27, 2014
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