Question

Awesome Products Company manufactures a product sold to retailers. It is considering suppliers for its process. The supplier quality involves four activity areas:

Activity Area	Cost Driver and Rate
Order cost	$120 per purchase order
Defective units	$200 per unit internal failure costs
Delivery trips	$5 per delivery
Carrying cost	$1 per order

The following supplier information is given:

	X3	Y2	Z1
Materials units needed	100,000	100,000	100,000
Actual purchase price	$5	$4.99	$5.01
Number of purchase orders	20	30	18
Number of defects	6	12	0
Number of deliveries	20	30	18

Which supplier is least costly?

a.Y2

b.Z1

c.X3

d.They are equally costly.

Awesome Products Company manufactures a product sold to retailers. It is considering suppliers for its process. The supplier quality involves four activity areas:

Activity Area	Cost Driver and Rate
Order cost	$120 per purchase order
Defective units	$200 per unit internal failure costs
Delivery trips	$5 per delivery
Carrying cost	$1 per order

The following supplier information is given:

	X3	Y2	Z1
Materials units needed	100,000	100,000	100,000
Actual purchase price	$5	$4.99	$5.01
Number of purchase orders	20	30	18
Number of defects	6	12	0
Number of deliveries	20	30	18

Which supplier is least costly?

a.Y2

b.Z1

c.X3

d.They are equally costly.

Answer 1

	X3		Y2		Z1
	Working	Amount	Working	Amount	Working	Amount
Material Cost (Material Units needed x Acutal Purchase price)	100,000x5	5,00,000	100,000x4.99	4,99,000	100,000x5.01	5,01,000
Order Cost (Order cost x number of purchase orders)	120x20	2,400	120x30	3,600	120x18	2,160
Defect Cost ( Defect cost x Number of defect)	200x6	1,200	200x12	2,400	200x0	-
Carrying Cost (Carrying Cost x Number of purchase order)	1x20	20	1x30	30	1x18	18
Delivery Cost (Delivery Cost x Number of delivery trips)	5x20	100	5x30	150	5x18	90
Total		5,03,720		5,05,180		5,03,268

As per the above working supplier Z1 is least costly.