=+17-30 KK Supply chain effects on total relevant inventory cost OBJECTIVE 4 Cow Spot Computers outsources the production of motherboards for its computers. It has narrowed down its choice of suppliers to two companies: Maji and Induk. Maji is an older company with a good reputation, while Induk is a newer company with cheaper prices. Given the difference in reputation, 5% of the motherboards will be inspected if they are purchased from Maji, but 25% of the motherboards will be inspected if they are purchased from Induk. The following data refer to costs associated with Maji and Induk:

Maji Induk Number of orders per year 150 150 Annual motherboards demanded 15 000 15 000 Price per motherboard $95 $80 Ordering cost per order $11 $9 Inspection cost per unit $5 $5 Average inventory level 100 units 100 units Expected number of stockouts 100 300 Stockout cost (cost of rush order) per stockout $5 $8 Units returned by customers for replacing motherboards 50 1 500 Cost of replacing each motherboard $25 $25 Required annual return on investment 10% 10%

Other carrying cost per unit per year $2.50 $2.50 Required