ClearPic Television Co. outsources the production of picture-tubes for the televisions it manufactures. It is currently deciding whether to use supplier X or supplier Y. Due to differences in the product failure rates in the two companies, 7.5% of picture tubes purchased from X will be inspected and 20% of picture-tubes purchased from Y will be inspected. The following data refer to costs associated with X and Y:

Required

1. What is the relevant cost of purchasing from X and Y?
2. What factors other than cost should ClearPic consider?

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Number of orders per year Annual picture-tubes demanded Price per picture-tube Ordering cost per order Inspection cost per unit Average inventory level Expected number of stockouts Stockout cost (cost of rush order) per stockout Units returned by customers for replacing picture-tubes Cost of replacing each motherboard Required annual return on investment Other carrying cost per unit per year X 60 12,000 98 15 5 $ $ S 150 120 $ 5 80 $ 25 12% $ 5.00 60 12,000 $ 96 12 55 69 $ $ S 5 150 270 7 600 $ 25 12% $ 5.00