Question

JFI Foods produces processed foods. Its basic ingredient is a feedstock that is mixed with other ingredients to produce the final packaged product. JFI purchases the feedstock from two suppliers, Rex Materials and Red Oak Chemicals. The quality of the final product depends directly on the quality of the feedstock. If the feedstock is not correct, JFI has to dispose of the entire batch. All feedstock in this business is occasionally "bad," so JFI measures what it calls the "yield," which is measured as,

Yield = Good output ÷ Input

where the output and inputs are both measured in tons. As a benchmark, JFI expects to get 10 tons of good output for every 20 tons of feedstock purchased for a yield of 50 percent (= 10 tons of output ÷ 20 tons of feedstock).

Data on the two suppliers for the past year follow:

   

	Rex Materials				Red Oak Chemicals			Total
Total inputs purchased (tons)		1,370				2,270			3,640
Good output (tons)		1,288				1,568			2,856
Average price (per ton)	$	190			$	150		$	165

3.

value:
25.00 points

Required information

Required:

Assume that the average quality, measured by the yield, and prices from the two companies will continue as in the past. What is the effective price for feedstock from the two companies when quality is considered? (Round intermediate calculations and final answers to 2 decimal places.)

References

eBook & Resources

WorksheetLearning Objective: 10-03 Describe how the actions of customers and suppliers affect a firm’s costs.

Difficulty: 2 MediumLearning Objective: 10-04 Use activity-based costing methods to assess customer and supplier costs.

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4.

value:
25.00 points

Required information

The sales manager of Red Oak Chemicals has proposed to the purchasing manager at JFI that Red Oak be given an exclusive contract to supply the feedstock. If it receives the contract, Red Oak will guarantee an 50 percent yield on the feedstock it supplies.

Required:

a. Assume that the average quality, measured by the yield, and prices from the two companies will continue as in the past. What is the maximum price for feedstock that JFI should be willing to pay Red Oak under the exclusive contract? (Round intermediate calculations and final answer to 2 decimal places.)

Answer 1

	Rex Materials	Red Oak Chemicals
Good output (tons)	1,288	1,568
Divided by: Total inputs purchased (tons)	1,370	2,270
Yield	94.01%	69.07%
Average price (per ton)	$                       190	$                            150
Divided by: Yield	94.0%	69.1%
Effective price	$202.11	$217.17

Effective price of Rex Materials	$202.11
Divided by: Yield	50.0%
Maximum price for feedstock that JFI should be willing to pay Red Oak under the exclusive contract	$101.06