Awesome Products Company manufactures a product sold to retailers. It is considering suppliers for its process. The supplier quality involves four activity areas: $\begin{array}{ll}
\text { Activity Area } & \text { Cost Driver and Rate } \
\text { Order cost } & \$ 120 \text { per purchase order } \
\text { Defective units } & \$ 200 \text { per unit internal failure costs } \
\text { Delivery trips } & \$ 5 \text { per delivery mile } \
\text { Carrying cost } & \$ 1 \text { per order }
\end{array}$

$\begin{array}{lrr}
\text { The following supplier information is given: }&X3&Y2&Z1\
\text { Materials units needed } & 100,000 & 100,000 & 100,000 \
\text { Actual purchase price } & \$ 5 & \$ 4.99&\$5.01\
\text { Number of purchase orders } & 20 & 30&18 \
\text { Number of defects } & 6 & 12&0 \
\text { Number of deliveries } & 20 & 30&18
\end{array}$
Which supplier is least costly?

Question

Awesome Products Company manufactures a product sold to retailers. It is considering suppliers for its process. The supplier quality involves four activity areas: $\begin{array}{ll}
\text { Activity Area } & \text { Cost Driver and Rate } \
\text { Order cost } & \$ 120 \text { per purchase order } \
\text { Defective units } & \$ 200 \text { per unit internal failure costs } \
\text { Delivery trips } & \$ 5 \text { per delivery mile } \
\text { Carrying cost } & \$ 1 \text { per order }
\end{array}$

$\begin{array}{lrr}
\text { The following supplier information is given: }&X3&Y2&Z1\
\text { Materials units needed } & 100,000 & 100,000 & 100,000 \
\text { Actual purchase price } & \$ 5 & \$ 4.99&\$5.01\ 
\text { Number of purchase orders } & 20 & 30&18 \
\text { Number of defects } & 6 & 12&0 \
\text { Number of deliveries } & 20 & 30&18
\end{array}$
Which supplier is least costly?

Quizplus · Accepted Answer

To determine the least costly supplier, we calculate the total cost for each supplier, including the purchase price, order cost, cost of defects, delivery trips cost, and carrying cost.For X3:- Purchase price: $100,000 \times \$5 = \$500,000$- Order cost: $20 \times \$120 = \$2,400$- Defects: $6 \times \$200 = \$1,200$- Delivery trips: $20 \times \$5 = \$100$- Carrying cost: $20 \times \$1 = \$20$- Total cost for X3: $500,000 + 2,400 + 1,200 + 100 + 20 = \$503,720$For Y2:- Purchase price: $100,000 \times \$4.99 = \$499,000$- Order cost: $30 \times \$120 = \$3,600$- Defects: $12 \times \$200 = \$2,400$- Delivery trips: $30 \times \$5 = \$150$- Carrying cost: $30 \times \$1 = \$30$- Total cost for Y2: $499,000 + 3,600 + 2,400 + 150 + 30 = \$505,180$For Z1:- Purchase price: $100,000 \times \$5.01 = \$501,000$- Order cost: $18 \times \$120 = \$2,160$- Defects: $0 \times \$200 = \$0$- Delivery trips: $18 \times \$5 = \$90$- Carrying cost: $18 \times \$1 = \$18$- Total cost for Z1: $501,000 + 2,160 + 0 + 90 + 18 = \$503,268$Comparing the total costs, Z1 is the least costly supplier.

Awesome Products Company Manufactures a Product Sold to Retailers