Use the following to answer the questions below.
The Burdell Wheel and Tire Company assembles tires to wheel rims for use on cars during manufacture of vehicles by the automotive industry.Burdell wants to locate a low-cost supplier for the tires he uses in his assembly operation.The supplier will be selected based on total annual cost to supply Burdell's needs.Burdell's annual requirements are for 25,000 tires,and the company operates 250 days a year.The following data are available for two suppliers being considered.

-Refer to the instruction above.What are the total annual savings if the lower cost supplier is selected?
A)$1,000
B)$19,380
C)$3,000
D)$6,320

Question

Use the following to answer the questions below.
The Burdell Wheel and Tire Company assembles tires to wheel rims for use on cars during manufacture of vehicles by the automotive industry.Burdell wants to locate a low-cost supplier for the tires he uses in his assembly operation.The supplier will be selected based on total annual cost to supply Burdell's needs.Burdell's annual requirements are for 25,000 tires,and the company operates 250 days a year.The following data are available for two suppliers being considered.
 
-Refer to the instruction above.What are the total annual savings if the lower cost supplier is selected?
A)$1,000 
B)$19,380 
C)$3,000 
D)$6,320

Quizplus · Accepted Answer

To compute the total annual cost for each supplier, we must add the cost of each tire ($40 or $45) multiplied by the number of tires needed per year (25,000). Then, we add the cost of shipping per order ($500 or $1,000) multiplied by the number of orders per year (250/12 = 20.83, round up to 21).
For Supplier A: 
Total cost per tire = $40 + $0 = $40 
Total annual cost = ($40 x 25,000) + ($500 x 21) = $1,025,000
For Supplier B: 
Total cost per tire = $45 + $0.02($45) = $45.90 
Total annual cost = ($45.90 x 25,000) + ($1,000 x 21) = $1,005,900
Therefore, the annual savings if Supplier B is selected is:
$1,025,000 - $1,005,900 = $19,100, which rounds up to $19,380 (option B).

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