Question

Q2

A) Every business establishes & follows a certain procedure for executing its purchase operations. Such procedure always involves the preparation of a number of documents and relevant authorities for their approval. One of these important documents involved in purchase procedure is called Quotation from supplier.

Required:

Explain why quotation is prepared by the supplier, what information is added in it, how many quotations a buyer should collect to minimum, use of quotation(s) for the buyer. Explain your answer with the help of a sample quotation.

B) Dice LLC specializes in electrical products. It uses the following three materials in its products:

  

Materials

D 1

D 2

D 3

Lead time (in months)

1-3'

2-3'

2-4'

Maximum consumption per month

30,000

25,000

50,000

Minimum consumption per month

10,000

8,000

19,000

Maximum lead time for emergency purchase

3

1

2

Cost of placing an order

200

200

200

Annual carrying cost per unit

100

100

100

Required: Calculate the following for the three materials:

a) Danger stock level and number of orders to placed in a year.

b) Reorder quantity. (1 Mark)

c) Minimum stock level. (1 Mark)

d) Maximum stock level. (1 Mark)

e) Average stock level. (1 Mark)

B) Dice LLC specializes in electrical products. It uses the following three materials in its products:

  

Materials

D 1

D 2

D 3

Lead time (in months)

1-3'

2-3'

2-4'

Maximum consumption per month

30,000

25,000

50,000

Minimum consumption per month

10,000

8,000

19,000

Maximum lead time for emergency purchase

3

1

2

Cost of placing an order

200

200

200

Annual carrying cost per unit

100

100

100

Required: Calculate the following for the three materials:

a) Danger stock level and number of orders to placed in a year.

b) Reorder quantity. (1 Mark)

c) Minimum stock level. (1 Mark)

d) Maximum stock level. (1 Mark)

e) Average stock level. (1 Mark)

Answer 1

Q2

A) Every business establishes & follows a certain procedure for executing its purchase operations. Such procedure always involves the preparation of a number of documents and relevant authorities for their approval. One of these important documents involved in purchase procedure is called Quotation from supplier.

Required:

Explain why quotation is prepared by the supplier, what information is added in it, how many quotations a buyer should collect to minimum, use of quotation(s) for the buyer. Explain your answer with the help of a sample quotation.

Ans.

Quotation is prepared by supplier because it gives the buyer exact information about the price, quantity, quality, terms of delivery, transportation cost, time taken for delivery, etc. So basic purpose of quotation for supplier is to provide clarity on delivery related details to buyer for placing order with supplier. It removes ambiguity on terms of sales. Besides it helps buyers in making better decision in terms of cost and quality.

Information added in quotation:

- Unit price of goods or service

- Total price of goods or service

- Tax rate applicable on goods or services

- Terms of delivery

- Warranty conditions & coverage

- Quality of goods

- Time taken to deliver

- Terms of payment

- Interest to be charged on late payment

- Currency of payment

- Buyer details

Number of quotations that buyer should collect to minimum should be two or more. But buyer should prefer more quotations because it will help buyer to select best alternative in terms of cost, quality and delivery options available for that purchase. Basically buyer collects more information to bring his purchase cost down.

So use of quotation for buyer is to determine the cost of purchase, terms of order fulfillment, quality of products, warranty conditions offered by supplier, payment terms, etc. So quotation acts as a proof for buyer regarding the supply conditions offered by supplier of product or service in case of any dispute also. Besides it ensures the lowest cost of purchase for buyer in terms of specific quality of goods or services.        

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