Question

In: Accounting

Pls answer all parts for Upvote Sound-Around Turntables (SAT) is a regional manufacturer of high fidelity...

Pls answer all parts for Upvote

Sound-Around Turntables (SAT) is a regional manufacturer of high fidelity turntables. It has been in business in Detroit, Michigan since 2008 and has steadily increased sales volume as U.S. sales of vinyl albums re-ignited.

Robert Ritchie, CEO for SAT received an order for 2,500 turntables for Best Buy, a national electronics retailer. Production for this order will begin in late March and the customer order must be delivered on June 1. Since SAT builds to order, Ritchie needs to begin ordering parts from his global supply base soon.

An important needed component is the turntable motor that is normally purchased from Dongguan Electric. The supplier is located in Kaohsiung City, Taiwan. The product is high quality and SAT has worked with Dongguan for 7 years. All units in the order would be shipped at one time. However, the company recently raised its prices citing higher material costs due to rising tariffs.  

Last week, Ritchie received a proposal from an Argentinian company that wants to become a supplier to SAT. Maduro Motors promises to make monthly deliveries of 500 units starting on December 15. Ritchie likes the idea of reducing the supplier-to-factory distance and receiving monthly deliveries. However, Ritchie doesn’t know much about this supplier or the political environment in Argentina.

The Options

Dongguan Electric currently sells the 20W synchronous motor to SAT for 825 TWD per unit. Order cycle time is 46 days. Terms are listed as DAT, Chicago Tradeport.

Maduro Motor proposes to sell a similar 20W electric motor to SAT for 875 ARS per unit. Order cycle time is 18 days. Terms are listed as FAS, Port of Mar del Plata.

Dongguan

Maduro

Price Per Unit

825 TWD

875 ARS

Estimated Ocean Shipping Cost per unit

140 TWD

78 ARS

Estimated US Customs duty per unit

39 TWD

12 ARS

Exchange Rates

Date

Taiwan New Dollar (TWD)

Argentine Peso (ARS)

January 11, 201x

30.75

29.88

Answer the following questions:

1. Evaluate the selling price and related costs per unit offered by each supplier in US dollars.

Dongguan

Maduro

Price Per Unit

$

$

Estimated Ocean Shipping Cost per unit

$

$

Estimated US Customs duty per unit

$

$

2 a. What costs, responsibilities and risks are assumed by the buyer (SAT) and the seller (Dongguan Electric) under Incoterms 2010, DAT, Chicago Tradeport?

b. What costs, responsibilities and risks are assumed by the buyer (SAT) and the seller (Maduro Motor) under Incoterms 2010, FAS, Port of Mar del Plata?

DAT, Chicago Tradeport

FAS, Port of Mar del Plata

Packaging goods for export and loading the container

Factory to port transportation

Payment of export duties (if any are due)

Loading the container on the ship

Paying for the ocean transport (carriage charges)

Paying for the insurance on the international voyage

Paying destination terminal charges for unloading freight

Clearing US Customs (pay import duties & taxes)

US transportation to final destination

3. Given your responses to Questions 1 and 2, what is the total known cost per motor that SAT will incur and what other costs will SAT incur?

Dongguan

Maduro

Costs from Q1 paid by SAT

$

$

Costs from Q2 that SAT will incur

Which supplier do you believe will provide the lowest total cost per unit?

□ Dongguan

□ Maduro

4. What other costs and factors would you consider during the supplier selection process?

5. Which global supplier would you select? Why?

Solutions

Expert Solution

Price per unit in US dollar for Dongguan Supply $26.83 (825/30.75) 26.82927
Price per unit in US dollar for Maduro Supply $29.28 (875/29.88) 29.2838
Estimated Ocean Shipping Cost (Dongguan) $4.55 (140/30.75) 4.552846
Estimated Ocean Shipping Cost (Maduro) $2.61 (78/29.88) 2.610442
Estimated US custom duty (Dongguan) $1.27 (39/30.75) 1.268293
Estimated US custom duty (Maduro) $0.40 (12/29.88) 0.401606
Maduro
Dongguan
Price Per Unit $26.83 $29.28
Estimated Ocean Shipping Cost per unit $4.55 $2.61
Estimated US Customs duty per unit $1.27 $0.40
DAT, Chicago Tradeport FAS, Port of Mar del Plata
Packaging goods for export and loading the container Dongguan Maduro
Factory to port transportation Dongguan Maduro
Payment of export duties (if any are due) Dongguan Maduro
Loading the container on the ship Dongguan SAT
Paying for the ocean transport (carriage charges) Dongguan SAT
Paying for the insurance on the international voyage Dongguan SAT
Paying destination terminal charges for unloading freight Dongguan SAT
Clearing US Customs (pay import duties & taxes) SAT SAT
US transportation to final destination SAT SAT
Maduro
Dongguan
Costs from Q1 paid by SAT $26.83 $29.28
Costs from Q2 that SAT will incur $1.27 $3.01 (2.61+0.40)
Which supplier do you believe will provide the lowest total cost per unit? $28.10 $32.29
Dongguan wiilProvide Lowest Cost per Unit
4 Other costs and factors:
Qualty
Service and Warranty
Reliability of delivery
Cost of Carrying Inventory
5 Selected supplier : Dongguan
Considering Lower cost and reliable delivery
However,inventory carrying cost is higher for Dongguan

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