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A company, DoveeCo, has just hired you for your expertise in purchasing. The idea is to have you go over and renegotiate all supplier contracts.
A company, DoveeCo, has just hired you for your expertise in purchasing. The idea is to have you go over and renegotiate all supplier contracts. Last year, DoveeCo had revenues of $15,000,000 cost of goods sold (COGS) of $8,000,000, sales and general costs of $2,500,000 and other operating expenses of $1,800,000. You start preparing to renegotiate the contracts for transportation. Transportation accounted for $1,010,000 of DoveeCos costs last year, and transport volumes are expected to stay the same for the coming year - i.e., 700,000 miles. You arrange a sealed-bid auction and three carriers submit bids. Carrier I (your current carrier) offers a flat rate of $2 per mile, Carrier II offers a flat rate of $1 per mile and an additional index-based surcharge of $650,000, and Carrier III offer a flat rate of $1.4 per mile and an index-based surcharge of $320,000. Question which carrier should you choose to maximize profit? And why? Hint: You need to consider the total cost of each contract
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