Argos Company needs a total of 125 tonnes of sheet steel50 tonnes of 2-inch width and 75 tonnes of 4-inch widthfor a customer's job. Argos can purchase the sheet steel in these widths directly from a steel manufacturer (Actium Corporation) or it can purchase sheet steel from Actium that is 24 inches wide and have it slit into the desired widths by Heraclion Inc. Both vendors are local and have previously supplied materials to Argos. Heraclion specializes in slitting sheet steel provided by a customer into any desired width. When negotiating a contract, Heraclion tells its customers there is a scrap loss in the slitting operation, but this loss has never exceeded 2.5 percent of input tonnes. Heraclion recommends if a customer has a specific tonnage requirement, it should supply an adequate amount of steel to yield the desired quantity. Heraclion's charges for steel slitting are based on good output, not input handled. The 24-inch wide sheet steel is a regular stock item of Actium and can be shipped to Heraclion within five days after receipt of Argos's purchase order. If Actium is to do the slitting, shipment to Argos would be scheduled for 15 days after receipt of Argos's purchase order. Heraclion has quoted delivery at 10 days after receipt of the sheet steel. In prior dealings, Argos has found both Actium and Heraclion to be reliable vendors with high quality products. Argos has received the following price quotations from Actium and Heraclion:

Actium Corporation Rates

Size 2 inch

Gauge 14

Quantity 50 tonnes

Cost Per Tonne 210

Size 4 inch

Gauge 14

Quantity 75 tonnes

Cost Per Tonne 200

Size 24 inch

Gauge 14

Quantity 125 tonnes

Cost Per Tonne 180

Heraclion Inc. Steel Slitting Rates

Size 2 inch

Gauge 14

Quantity 50 tonnes

Price Per Tonne of output 18

Size 4 inch

Gauge 14

Quantity 75 tonnes

Price Per Tonne of output 15

Freight and Handling Charges

Destination --------Cost Per Tonne

Actium to Argos ----$10.00

Actium to Heraclion----- 5.00

Heraclion to Argos -----7.50

In addition, Heraclion informed Argos that if it purchases 100 output tonnes of each width, the per-tonne slitting rates would be reduced 12 percent. Argos knows the same customer will be placing a new order in the near future for the same material and estimates it would have to store the additional tonnage for an average of two months at a carrying cost of $1.50 per month for each tonne. There would be no change in Actium's prices for additional tonnes delivered to Heraclion.

Required: Prepare an analysis that will show whether Argos Company should:

1a. Purchase the required slit steel directly from Actium Corporation.

Argos Company Analysis

2-inch $ ______

4-inch _____

Shipping $ _____

1b. Purchase the 24-inch wide sheet steel from Actium and have it slit by Heraclion into 50 output tonnes 2 inches wide and 75 output tonnes 4 inches wide.

Heraclion Company

Analysis

Cost of steel from Actium $ ______

Cost of shipping from Actium to Heraclion

Cost of slitting at Pre-cut: ______

2-inch _______

4-inch ______

Cost of shipping to Argos $ ______

1c. Take advantage of Heraclion's reduced slitting rates by purchasing 100 output tonnes of each width.

Argos Company

Analysis

Cost of steel from Actium $ ______

Cost of shipping from Actium to Heraclion Cost of slitting at pre-cut:

2-inch _______

4-inch _______

Cost of shipping to Argos ________

Cost of storage $ ______

For comparison purposes, the cost for immediate needs is:

Cost of steel $ _______

Cost of shipping from Actium to Heraclion Cost of slitting:

2-inch ______

4-inch ________

Cost of shipping to Argos________

Cost of storage $_______