Kuantan ATV, Inc. assembles five different models of all-terrain vehicles (ATVs) from various ready-made components to serve the Las Vegas, Nevada, market. The company uses the same engine for all its ATVs. The purchasing manager, Ms. Jane Kim, needs to choose a supplier for engines for the coming year. Due to the size of the warehouse and other administrative restrictions, she must order the engines in lot sizes of 1,000 each. The unique characteristics of the standardized engine require special tooling to be used during the manufacturing process. Kuantan ATV agrees to reimburse the supplier for the tooling. This is a critical purchase, since late delivery of engines would disrupt production and cause 50 percent lost sales and 50 percent back orders of the ATVs. Jane has obtained quotes from two reliable suppliers but needs to know which supplier is more cost-effective. The terms of sale are 5/10 net 30 for Supplier 1 and 3/10 net 30 for Supplier 2. The data related to the costs of ownership associated with two reliable suppliers has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.

Questions

1. What is the total cost of ownership for each of the suppliers? Assume the buyer will take advantage of the largest discount. Do not round intermediate calculations. Round your answers to the nearest cent.

	Supplier 1	Supplier 2
Total	$	$

2. Which supplier is more cost-effective?

Total Cost of Ownership Analysis
			Unit Price	Supplier 1	Supplier 2
Requirements (annual forecast units)	14,000		1 to 999 units per order	$530.00	$520.00
Lot size (Q)	1,000		1000 to 2999 units per order	$520.00	$515.00
Weight per engine (lbs)	29		3000+ units per order	$510.00	$506.00
Order processing cost (per order)	$125.00		Tooling cost	$25,000	$22,000
Inventory carrying rate (per year)	24%		Terms (net 30)	5%	3%
Cost of working capital (per year)	5%		Distance (miles)	140	100
Profit margin	20%		Supplier Quality Rating (defects)	3%	2%
Price of finished ATV	$5,000		Supplier Delivery Rating (lateness)	2%	3%
Back-order cost (per unit)	$19.00
Back-order lost sales	50%			Supplier 1	Supplier 2		Formulas
Late delivery lost sales	50%		Total engine cost				#N/A	#N/A
			Cash discount (net 30)				#N/A	#N/A
Other Information			Cash discount (early payment)				#N/A	#N/A
Truckload (TL>=40,000 lbs)	$0.60	per ton-mile	Tooling cost				#N/A	#N/A
Less-than-truckload (LTL)	$1.20	per ton-mile	Transportation cost				#N/A	#N/A
Per ton-mile	2,000	lbs per mile	Ordering cost				#N/A	#N/A
Days per year	365		Carrying cost				#N/A	#N/A
Invoice payment period (days)	30		Quality cost				#N/A	#N/A
Discount period (days)	10		Backorder cost				#N/A	#N/A
			Lost sales cost				#N/A	#N/A
			Total cost				#N/A	#N/A
			Lowest cost				#N/A