A buyer received bids and other relevant information from two suppliers for a vital component part for its latest product. Given the following information, use a total cost analysis to determine which supplier should be chosen. Late delivery of the component results in 40 percent lost sales and 60 percent back orders of finished goods.

Order lot size	500	units
Annual demand	10,000	units
Weight per part	90	lbs
Order processing cost	30	$/order
Inventory carrying rate	22	%/year
Cost of working capital	28	%/year
Profit Margin	17	%/unit
Price of finished goods	5000	$/unit
Backorder Cost	300	$/unit

Supplier 1 is located 300 miles away. They have a quality rating of 2.5% and a delivery rating of 1%. The terms they offer are 1%10, net 30. The unit cost from supplier 1 is $110 per unit if they order 1 to 999, $108 per unit if they order between 1000 to 2999 units, and $106 per unit if they order more than 3000 at a time.

Supplier 2 is located 280 miles away. They have a quality rating of 2% and a delivery rating of 4%. The terms they offer are 2%15, net 30. The unit cost from supplier 2 is $115 per unit if they order 1 to 999, $112 per unit if they order between 1000 to 2999 units, and $106 per unit if they order more than 3000 at a time.

Assume 365 days/year. Note: per ton-mile = 2,000 pounds per mile

For shipping the costs are:

Truckload (TL 40,000 lbs): $0.91 per ton-mile

Less-than-truckload (LTL): $1.15 per ton-mile

What is the expected cost of lost sales if the company uses supplier 1? (Round to the nearest whole number)

	a.	$34,000
	b.	$136,000
	c.	$51,000
	d.	$85,000
	e.	None of these

What are the inventory holding costs if the company uses supplier 2? (Round to the nearest whole number)

	a.	$6,050
	b.	$6,160
	c.	$6,325
	d.	None of these
	e.	$12,650