1. A buyer received bids and other relevant information from two suppliers for a vital component part for its latest product. Given the following information, use a total cost analysis to determine which supplier should be chosen. Late delivery of the component results in 25 percent lost sales and 75 percent back orders of finished goods.

   Order lot size	1281	units
   Annual demand	236.985	units
   Weight per part	15	lbs
   Order processing cost	100	$/order
   Inventory carrying rate	21	%/year
   Cost of working capital	16	%/year
   Profit Margin	5	%/unit
   Price of finished goods	400	$/unit
   Backorder Cost	40	$/unit

   Supplier 1 is located 135 miles away. They have a quality rating of 3.0% and a delivery rating of 0.5%. The terms they offer are 2%12, net 30. The unit cost from supplier 1 is $150 per unit if they order 999 or less per order, $145 if they order 1000-2999 per order, and $143 if they order 3000 or more per order.

   Supplier 2 is located 99 miles away. They have a quality rating of 2.0% and a delivery rating of 1.0%. The terms they offer are 1%10, net 30. The unit cost from supplier 2 is $151 per unit if they order 999 or less per order, $144 if they order 1000-2999 per order, and $142 if they order 3000 or more per order.

   Assume 365 days/year. Note: per ton-mile = 2,000 pounds per mile

   For shipping the costs are:

   Truckload (TL 40,000 lbs): $0.94 per ton-mile

   Less-than-truckload (LTL): $1.10 per ton-mile

   What is the expected cost of lost sales if the company uses supplier 1? (Round to the nearest whole number)

   	a.	$5,925
   	b.	$11,849
   	c.	$17,774
   	d.	None of these
   	e.	$2,148