"It would be nice if we had a selectable supply purchasing option for sheet metal components," lamented Mr. Chan, purchasing manager for the Blue Scope Company. "I understand what you mean," replied Mrs. Marlinda, Mr. Chan's assistant. "Let me call my friend in the Accounts Department. He might be able to give us some suggestions". Blue Scope Company needs a total of 125 metric tons of iron sheets, which are 50 metric tons of 4-centimeter-sized iron sheets and 75 metric tons of 8-centimeter-sized iron sheets to carry out renovation work on the client's building. For the purchase of these iron sheets, Blue Skop Company has two options: 1. The company can purchase the iron sheets directly from Kee Luly Berhad according to the required specifications; or 2. The company buys 48 centimeter iron sheets from Kee Luly Berhad and then the iron sheets are cut to the size required by Pecut Company. Pecut Company is a company that provides services for cutting iron sheets according to customer specifications, where cutting charges are charged according to the order. Both of these companies have dealt with Blue Scope Company and are reliable suppliers with high quality products. Pecut Company informs its customers that there is a normal loss in cutting work, however it does not exceed 2.5 percent of input metric tons. They recommend that if a customer wants a certain quantity of sheet metal, the input supply of sheet metal must be sufficient to produce the desired quantity of sheet metal. The cut-off charge is based on the quantity of output produced, not the input handled. The 48 centimeter iron sheet is a regular inventory at Kee Luly Berhad and can be delivered to Pecut Company within five days of receipt of the purchase order from Blue Scope Company. In the case of Kee Luly Berhad doing the sheet metal cutting work, delivery to Blue Scope Company is 15 days from the date of receipt of the order. Pecut Company, on the other hand, set the delivery to be 10 days after receiving the iron sheet. Kee Luly Berhad and Pecut Company have submitted a price list to Blue Scope Company as follows:

Kee Luly Berhad Size (cm)

Centimeter Metric Ton Cost per Metric Ton (RM)

4 50 210.00

8 75 200.00

48 125 180.00

Sprint Company

Centimeter Metric Tan Cost of cutting per Metric Tan Output(RM)

4 50 210.00

8 75 200.00

Shipping and Handling Charges

Destination Cost per ton metric (RM)

Kee Luly Berhad to Blue Scope Company 10.00

Kee Luly Berhad to Pecut Company 5.00

Sprint Company to Blue Scope Company 7.50

In addition to the above information, Pecut Company states that if Blue Scope Company buys 100 metric tons of output for each size of iron sheet, the price rate will be reduced by 12 percent per metric ton. Blue Scope Company is confident that the same customer will place a new order in the near future. However, the Blue Scope Company needs to store additional iron sheets for two months at a holding cost of RM1.50 per month per metric ton. There is no change in the price charged by Kee Luly Berhad for each additional metric ton delivered to the premises of Syarikat Pecut. As Mrs. Marlinda's friend in the Accounts Department, you have just received a phone call from her asking for help.

Be required:

a) Prepare an analysis for the following three alternatives in determining the best option that Blue Scope Company should choose: i. Purchase the required sheet metal directly from Kee Luly Berhad. ii. Purchased 48 centimeter sized iron sheets from Kee Luly Berhad and then cut by Syarikat Pecut into 50 metric tons of 4 centimeter output and 75 metric tons of 8 centimeter output. iii. Take advantage of the Sprint Company's reduced price cut rate by purchasing 100 metric tons of output for each size of sheet metal (4 centimeters and 8 centimeters). Round all numbers to the nearest cent. (25 marks)

b) Regardless of answer (a) above, present three (3) additional reasons, which describe non-financial information related to why Blue Scope Company may choose to purchase iron steel directly from Kee Luly Berhad. (5 marks)