A manufacturer has decided to outsource and offshore a small electric motor that it currently manufactures itself.It has found an offshore supplier that charges $925,000 for a minimum order quantity of 5,000 motors.Shipping costs for this quantity are $15,000.The buyer expects to place four orders per year to meet its annual need for 20,000 motors.Annual carrying cost is 25% of unit price,and import tariffs are 12% of unit price.The company expects to spend $12,500 per year on contracting and relationship maintenance.What is the total cost of outsourcing and offshoring this motor?

Question

Quizplus · Accepted Answer

Unit cost = $185; shipping cost per unit = $3; inventory carrying cost per unit = $1.445, calculated as [(5,000 / 2) * (0.25 / 4) * $185] / 20,000; tariff expense = .12 * 185 = $22.20; and contract relationship cost is $12,500 / 20,000 = .625 per unit. $185 + 3 + 1.445 + 22.20 + .635 = $212.28.

A Manufacturer Has Decided to Outsource and Offshore a Small