Question

Your company assembles five different models of a motor scooter that is sold in specialty stores in the United States. The company uses the same engine for all five models. You have been given the assignment of choosing a supplier for these engines for the coming year. Due to the size of your warehouse and other administrative restrictions, you must order the engines in lot sizes of 1,000 each. Because of the unique characteristics of the engine, special tooling is needed during the manufacturing process for which you agree to reimburse the supplier. Your assistant has obtained quotes from two reliable engine suppliers and you need to decide which to use. The following data have been collected:
Requirements (annual forecast) 12,000 units
Weight per engine 22 pounds
Order processing cost $ 125 per order
Inventory carry cost 20 percent of the average value of inventory per year
Two qualified suppliers have submitted the following quotations:


Your assistant has obtained the following freight rates from your carrier:
Truckload (40,000 lbs. each load): $ 0.80 per ton- mile
Less- than- truckload: $ 1.20 per ton- mile
a. Perform a total cost of ownership analysis and select a supplier.
b. Would it make economic sense to order in truckload quantities? Would your supplier selection change if you ordered truckloadquantities?


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  • CreatedApril 09, 2014
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