Supply chain effects on total relevant inventory cost. Cow Spot Computer Co. outsources the production of motherboards for its computers. It has narrowed down its choice of suppliers to two companies: Maji and Induk. Maji is an older company with a good reputation, while Induk is a newer company with cheaper prices. Given the difference in reputation, 5% of the motherboards will be inspected if they are purchased from Maji, but 25% of the motherboards will be inspected if they are purchased from Induk. The following data refers to costs associated with Maji and Induk.

1. What is the relevant cost of purchasing from Maji and Induk?

2. What factors other than cost should Cow Spotconsider?

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Induk Maji Number of orders per year 50 50 10,000 Annual motherboards demanded 10,000 $90 Price per motherboard $93 $10 $8 Ordering cost per order Inspection cost per unit $5 $5 100 units Average inventory level 100 units Expected number of stockouts 100 300 $5 $8 Stockout cost (cost of rush order) per stockout 500 Units returned by customers for replacing motherboards 50 $25 $25 Cost of replacing each motherboard 10% 10% Required annual return on investment Other carrying cost per unit per year $2.50 $2.50