Cow Spot Computer Co. outsources the production of motherboards for its computers. It has narrowed down its choice of suppliers to two companies: Maji and Induk. Maji is an older company with a good reputation, while Induk is a newer company with cheaper prices. Given the difference in reputation, 10% of the motherboards will be inspected if they are purchased from Maji, but 30% of the motherboards will be inspected if they are purchased from Induk. The following data refers to costs associated with Maji and Induk

Required

1. What is the relevant cost of purchasing from Maji and Induk?

2. What factors other than cost should Cow Spot consider?

Maji Induk 40 40 10,000 10,000 $ 98 91 $ $ $ 9 6 $ $ 5 Number of orders per year Annual motherboards demanded Price per motherboard Ordering cost per order Inspection cost per unit Average inventory level Expected number of stockouts Stockout cost (cost of rush order) per stockout Units returned by customers for replacing motherboards Cost of replacing each motherboard Required annual return on investment Other carrying cost per unit per year 300 units 300 300 units 900 $ 5 $ 6 40 400 $ 27 $ 27 10% 10% $ 2.70 $ 2.70 Requirement 1. What is the relevant cost of purchasing from Maji and Induk? Maji Induk Purchase costs Ordering costs Inspection costs Required annual return on investment Stockout costs Return costs Other carrying costs Total cost