Qu HW #2: TCO Started: Sep 26 at 2:01pm Quiz Instructions Your company makes sno
ID: 392120 • Letter: Q
Question
Qu HW #2: TCO Started: Sep 26 at 2:01pm Quiz Instructions Your company makes snow blowers and this winter they have been selling very well. You are evaluating a quote from a supplier for engines that power your snow blowers. The quote is as follows: Supplier 1 Tim Atte 0 M Price $90 Terms 2% 10 Net 45 Distance 200 Minimum order 1500 quantity Weight 20 lbs Assume the following: Annual volume for engines is expected to be 90,000 units The price is constant regardless of volume or order quantity . Inventory holding rate is 25%Explanation / Answer
Snow blower price = $90, distance= 200miles, weight = 20lbs, minimum order= 1500
Answer 1: Annual purchase cost for 90,000 units = $90*90,000 = $ 8,100,000
Inventory holding rate= 25%
Considering the inventory of 90,000 units per year
Answer 2: Annual holding cost= 25% of annual purchase cost= 0.25*8,100,000= $ 2,025,000
Order is of 1500 units. Therefore, total truck load = 1500*20lbs= 30,000 lbs i.e less than truck load
Answer 3: For calculating freight cost, the freight rate would be $2 per ton because LTL is used.
Answer 4: Annual freight cost= total distance * freight rate * total weight of 90,000 units
= 200*($2/2000lbs)*90,000*20lbs= $ 360,000
Answer 5: Cost in net 45 term is equal to the original cost of product, that is, $8,100,000 (excluding freight and inventory cost)
Answer 6: cost with 2% 10 terms is equal to cost after 2% discount, that is, 0.98*8100000= $7,938,000
Answer 7: 2% 10 method of payment should be used because it helps in lowering the cost of snow blower.
Answer 8: Total cost of owner ship (considering no inventory cost) = annual product cost (with 2% 10) + freight charges + working capital cost= 7938000+360000+(0.12*7938000) = $9,250,560