The XYZ company sells approximately 900,000 gizmos annually. Each gizmo consists of 15 components. Management is currently evaluating which vendor to choose as the primary supplier of one of the components. Four vendors have been identified. Management wants you to choose the vendor that will provide the lowest total cost (purchase price plus expected warranty repairs costs). It costs $135 to repair or replace defective products returned by customers.

Required

a. Use the following information to identify which vendor to select:

b. How would your decision change if marketing research indicated that product failures due to defects in this particular component were the most important factor influencing overall customer satisfaction with the company’s gizmo product?

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Factor Purchase price of component Estimated failure rate of component Vendor A Vendor B Vendor C Vendor D $23.50 5.8% $24.00 5.2% $24.70 4.7% $26.00 4.2%