As a Senior Buyer of Best company you have to sign a new yearly contract. The current cost structure of your vendor, which was given to you by its Marketing Manager (after some delays and claims that it is not common practice to reveal such information), appears in the centre column of the following table (Figures are in $CAD per unit): (10 marks)

Direct Cost:	Current Cost Structure of Vendor ($per unit)	Proposed Structure ($per unit)
Material	1100
+Labour	400
+Overhead	? (Based on 100% of Direct Labour)
=Manufacturing Cost	?
+General Admin	? (Based on 20% of Manufacturing Cost)
=Total Cost	?
+Profit	? (Based on 25% of Total Cost)
=Selling Price	?

Although the vendor completed all the detailed calculations, including his selling price, you put '?' s, in order to check them.

a. Complete the calculation of the current cost structure of your vendor (Replace the '?'s with numbers), in the above table- centre column. List the Selling Price (Total) (2 marks)

You did some research about cost structures in the industry, which suggests that companies typically have overhead rates equivalent to 80% of direct labour, and that profit margins generally do not exceed 20% of total costs.

You have also discovered that your vendor has built $100 into his material cost, for special anti rust treatment, which is not required anymore.

b. Re-calculate the cost structure and the final selling price, according to your research.

Insert the new figures in the above table- right column. List the Proposed Selling Price (Total) (6 marks)

You plan to place a purchase order for 600 units for the year, and to convince the vendor to accept your fair calculation for a selling price.

c. Based on the difference between the vendor's cost figure and your revised calculation for it, what would the total yearly savings on this contract be? (2 marks)