Rex Metal Fabricators (RMF) buys scrap metal and produces components for buildings and other structures. The purchase contracts specify an average quality level of 75 percent. That is, 75 percent of the metal must be ready for use without further processing. Metal that is not ready can be treated at extra cost by RMF, and this is more cost-effective than scrapping the metal and purchasing additional amounts. The cost of treating the metal requiring further processing is $80 per ton.

RMF uses two suppliers: Chopin Yards and Joe Company. During the past year, the purchasing quality data were as follows:

	Chopin Yards	Joe Company	Total
Total purchases (tons)	4,500	2,500	7,000
Average purchase price (per ton)	$ 124.00	$ 150.00	$ 133.29
Percentage requiring further processing	17.0	15.0	16.3

Required:

Assume all else remains the same. What percentage of metal from Chopin Yards that requires further processing would make Rex Metal Fabricators indifferent between buying from Chopin Yards and Joe Company?

Answer rating: 100% (QA)

To find the percentage of metal from Chopin Yards that would make Rex Metal Fabricators indifferent between buying from Chopin Yards and Joe Company w... View the full answer