There are three suppliers of raw material for a factory. Supplier A offers a selling price...

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There are three suppliers of raw material for a factory. Supplier A offers a selling price of $100 per unit with terms of 2/20 net 45, while Supplier B offers a selling price of $105 per unit with terms 1.25/15 net 30, and Supplier C offers a selling price of $110 per unit with terms 3/10 net 50. a. Based on your calculations, which supplier offers the lowest and the highest effective annual cost (i.e. if you forego the discount with compounding effects)? b. Assuming that the factory cares about the discount more than the selling price, which supplier should they choose and how should the factory go about in paying the supplier? c. Based on your calculations the factory would like to negotiate with the other two suppliers to change the credit policy. What do you suggest the factory to request for? There are three suppliers of raw material for a factory. Supplier A offers a selling price of $100 per unit with terms of 2/20 net 45, while Supplier B offers a selling price of $105 per unit with terms 1.25/15 net 30, and Supplier C offers a selling price of $110 per unit with terms 3/10 net 50. a. Based on your calculations, which supplier offers the lowest and the highest effective annual cost (i.e. if you forego the discount with compounding effects)? b. Assuming that the factory cares about the discount more than the selling price, which supplier should they choose and how should the factory go about in paying the supplier? c. Based on your calculations the factory would like to negotiate with the other two suppliers to change the credit policy. What do you suggest the factory to request for?

Answer rating: 100% (QA)

To calculate the effective annual cost for each supplier we need to take into account the discount terms and the compounding effects a Calculating the ... View the full answer