In: Accounting
Kinnear Plastics manufactures various components for the aircraft and marine industry. Kinnear buys plastic from two vendors: Tappan Corporation and Hill Enterprises. Kinnear chooses the vendor based on price. Once the plastic is received, it is inspected to ensure that it is suitable for production. Plastic that is deemed unsuitable is disposed of.
The controller at Kinnear collected the following information on
purchases for the past year:
Tappan | Hill | |
Total purchases (tons) | 4,500 | 7,500 |
Plastic discarded | 135 | 375 |
The purchasing manager has just received bids on an order for 170 tons of plastic from both Tappan and Hill. Tappan bid $1,358 and Hill bid $1,349 per ton.
Required:
1-a. Assume that the average quality, measured by the amounts discarded from the two companies, will continue as in the past. What is the effective cost per ton for both Tappan and Hill? (Do not round intermediate calculations.)
CONCLUSION : Therefore we should not come to a conclusion price based on tender quotation.After taking into consideration discarded items ,tappan is the best plastic vendor as we can save 20$ per ton .