Brite Lite Inc. manufactures light bulbs. Their purchasing policy requires that the purchasing agents place each quarters
Question:
• Mid-States Glass Company: $ 28.00 per pound of glass. Delivery schedule: 45,000 (500 lbs. × 90 days) pounds at the beginning of July to last for 3 months.
• Cleveland Glass Company: $ 28.20 per pound of glass. Delivery schedule: 500 pounds per working day (90 days in the quarter).
Brite Lite accepted Mid-States Glass Company’s bid because it was the low-cost bid.
Instructions
1. Comment on Brite Lite’s purchasing policy.
2. What are the additional (hidden) costs, beyond price, of Mid- States Glass Company’s bid? Why weren’t these costs considered?
3. Considering just inventory financing costs, what is the additional cost per pound of Mid-States Glass Company’s bid if the annual cost of money is 10%?
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Related Book For
Financial and Managerial Accounting
ISBN: 978-1285078571
12th edition
Authors: Carl S. Warren, James M. Reeve, Jonathan Duchac
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