Allure is a Japanese automotive manufacturer that specializes in family sedans, trucks, and SUVs. In the

$1980$s$,$ Allure saw a great opportunity to sell its vehicles in North America. As a result, in $1981$ Allure started

Allure Canada, a wholly owned subsidiary of Allure Japan. Since $1981,$ the Allure brand has become very

popular in Canada. Many published consumer reports have referred to the Allure sedan as the safest family

car on the road in Canada. The Allure vehicles are known for lasting several years and many families use

theirs for more than $10$ years. Other than regular maintenance, Allure vehicles generally do not require

major repair within the first five years. Since the expansion into North America, Allure has subsidiaries all

over the world, including several European countries.

In $1981,$ when Allure first started its operations in Canada, $100\%$ of the manufacturing was in Japan.

In $1990,$ Allure opened its first manufacturing facility outside of Japan in Ontario. The Ontario plant would

be responsible for manufacturing all of the vehicles for the Canadian market. The majority of the parts are

manufactured in$-$house or outsourced to a third party in Canada. In order to maintain control, Allure Japan

shipped all spark plugs $($an important part of each engine$)$ to the Canadian subsidiary. Allure Japan has a

very efficient inventory control system and traditionally has not involved the Canadian division in deciding

how many spark plugs would be shipped to Canada each month. Allure Japan always ships enough spark

plugs to Canada every month to ensure that $50\%$ of the next month's demand is met. $($Each vehicle requires

four spark plugs.$)$ During $20$X$2,$ Japan suffered from a very significant earthquake that caused severe dam$-$

age across the country, including the destruction of Allure's manufacturing plant. On December $15,$ Allure

Japan notified the Canadian subsidiary that it would not be shipping any more spark plugs to Canada for at

least one year.

On December $15,$ Allure Canada's Vice President of Operations, Elena Zajac, received the notice that

Allure Japan would not ship any more spark plugs for a year, and she called an emergency meeting. At the

meeting were the production manager, Alain Boulerice, and you, the cost accountant. Elena has asked that

you review sales forecasts $($Exhibit $1)$ for the following year, and determine the monthly amounts of spark

plugs to purchase and the cash requirements to do so$.$ As soon as the earthquake hit Japan, Alain was wor$-$

ried that something like this could happen. Alain has received quotes from two suppliers $($Exhibit $2)$ and

brought them to the meeting for your review.

Required

Elena has asked you to state which one of the suppliers' offers you would recommend and mention your

potential concerns. Write a report to Elena, keeping in mind that Allure Canada has a limited number of

spark plugs in inventory.