Consider the information in Problem 10-62. The sales manager of Kilda Corporation has proposed to the purchasing manager at RCC that KC be given an exclusive contract to supply the aggregate. Assume that the total annual demand remains the same. If it receives the contract, KC will deliver the aggregate in the same average-sized load as it does currently.

Required
a. If KC receives the exclusive contract, assume the load quality and delivery timeliness will remain the same as current experience. What
is the maximum price RCC should offer KC for the exclusive contract?
b. Suppose KC guarantees that no deliveries will be delayed or it will repay RCC for the costs associated with the delays. What is the maximum price RCC should offer KC for the exclusive contract?

Problem 10-62

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Toorak Gravel Kilda Corp. Number of loads 100 400 Average tons per load Average price per ton Number of initial inspections passed Number of delayed deliveries 10,000 5,000 $ 6.00 $ 5.90 94 300 10 80