Jacaranda Builders is undertaking an analysis of supplier costs in order to evaluate the relative costs and performance of each supplier. They have isolated a range of activities that are consumed by suppliers, identified activity drivers, and estimated the cost per unit of activity driver for last year:

The three major suppliers to the Company consumed the following numbers of activities:

In addition, a supplier relationship manager (salary $90 000) was employed. It is estimated that 60 percent of his time was spent serving Wombat Plumbing, and 40 percent for the other two suppliers. The cost of material purchased from each supplier was as follows:
Possum Timber .............................. $240 000
Wombat Plumbing .......................... $300 000
Emu Insulation ............................. $148 000
Required:
1. Calculate the total cost of ownership for each of the three suppliers, using a format similar to that shown in Exhibit 15.3.
2. Determine the supplier performance index for each supplier.
3. Discuss the relative performance of each supplier.
4. Do you have any recommendations on supplier selection for the management of Jacaranda Builders?

Transcribed Image Text:

Cost per unit of activity driver $400 per unit reworked $500 per order $360 per delivery $600 per delivery $440 per return $380 per invoice $1120 per dispute Activity Downtime due to poor quality material Order material Receive order Inspect order Return material to supplier Pay supplier Dispute invoiced amount Possum Timber Activity Units reworked Order material Receive order Inspect order Return material to supplier Pay supplier Dispute invoiced amount Wombat Plumbing Emu Insulation 10 2 30 40 48 40 38 60 60 40 38 15 12 48 12 13