Supply-chain effects on total relevant inventory cost. Cow Spot Computer Co. outsources ©

the production of motherboards for its computers. It has narrowed down its choice of suppliers L Total cost, Maii, to two companies: Maji and Induk. Maji is an older company with a good reputation, while —_¢935,939 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.

REQUIRED 1. What is the relevant cost of purchasing from Maji and Induk?
2. What factors other than cost should Cow Spot consider?LO1

Transcribed Image Text:

Number of orders per year Annual motherboards demanded Price per motherboard Ordering cost per order Inspection cost per unit Average inventory level Expected number of stockouts Stockout cost (cost of rush order) per stockout Units returned by customers for replacing motherboards Cost of replacing each motherboard Required annual return on investment Other carrying costs per unit per year Maji Induk 50 50 10,000 10,000 $ 93 $ 90 $ 10 $ 8 $ 5 $ 5 100 units 100 units 100 300 $ 5 $ 8 50 500 $ 25 $ 25 10% 10% $ 2.50 $ 2.50