The purchasing manager of a distillery company is considering three sources of supply for oak barrels. The first supplier offers any quantity of barrels at `150 each. The second supplier offers barrels in lots of 150 or more at `125 per barrel. The third supplier offers barrels in lots of 250 or more at `100 each. The distillery uses 1,500 barrels a year at constant rate. Carrying costs are 40 percent of purchase price, and it costs the purchasing agent `400 to place an order. Calculate the total annual cost for the orders placed to the probable suppliers, and find out the supplier to whom the orders should be placed.
Answers
Answer :
First supplier : 315,400
Second supplier : 263,300
Third supplier : 210,800
Explanation :
To determine the best supplier, we need to calculate the total annual cost for each of the three suppliers and compare them.
First supplier: Total cost = 1500 × 150 = 225,000; Carrying cost = 225,000 × 0.4 = 90,000; Order cost = 400; Total annual cost = 225,000 + 90,000 + 400 = 315,400
Second supplier: Total cost = 1500 × 125 = 187,500; Carrying cost = 187,500 × 0.4 = 75,000; Order cost = 400 × 2 = 800 (2 orders needed); Total annual cost = 187,500 + 75,000 + 800 = 263,300
Third supplier: Total cost = 1500 × 100 = 150,000; Carrying cost = 150,000 × 0.4 = 60,000; Order cost = 400 × 2 = 800 (2 orders needed); Total annual cost = 150,000 + 60,000 + 800 = 210,800
The third supplier offers the lowest total annual cost of `210,800 and should be the supplier the purchasing manager should place the orders with.
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Answer:
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Explanation:
The total annual subscription cost for the first supplier = (1,500 x 150) + (1,500 x 0.4 x 150) + 400 = Rs. 345,000 Total annual costs for the second supplier = (10 x 125) + (10 x 0.4 x 125) + 400 + (1,490 x 150) + (1,490 x 0.4 x 150) = Rs. 330,500 Total annual costs for the third supplier = (6 x 100) + (6 x 0.4 x 100) + 400 + (1,494 x 125) + (1,494 x 0.4 x 125) = Rs. 324,800 The orders should be placed to the third supplier as it has the lowest total annual cost of Rs. 324,800.
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