Lean Principles

HD Hogg Motorcycle Company manufactures a variety of motorcycles. Hogg's purchasing policy requires that the purchasing agents place each quarter's purchasing requirements out for bid. This is because the Purchasing Department is evaluated solely by its ability to get the lowest purchase prices. The lowest cost bidder receives the order for the next quarter (90 days). To make its motorcycles, Hogg requires 4,500 frames per quarter. Hogg received two frame bids for the third quarter, as follows:

• Famous Frames, Inc.: $301 per frame. Delivery schedule: 50 frames per working day (90 days in the quarter).
• Iron Horse Frames Inc.: $300 per frame. Delivery schedule: 4,500 (50 frames x 90 days) frames at the beginning of July to last for three months.

Hogg accepted Iron Horse Frames Inc.'s bid because it was the low-cost bid.

Required:

1. All of the following are ways in which Hogg Motorcycle could develop long-term partnerships with its suppliers except:

1. share research and development efforts.
2. ignore internal costs caused by delivery delays while contracting on the best price point basis.
3. share production schedules.
4. establish electronic data interchange.
5. establish supplier raw materials logistical support.

2. All of the following statements are true regarding the hidden costs beyond the price of Iron Horse Frames, Inc.'s bid except:

1. They are easy to determine, yet often overlooked.
2. They ignores additional internal costs of the higher inventory imposed by Iron Horse Frames' delivery schedule.
3. The hidden costs are incurred by other parts of the organization, not purchasing.
4. The hidden costs include costs for additional space and handling.
5. The hidden costs include costs of obsolescence and financing.

3. Considering just inventory financing costs, what is the additional cost per frame of Iron Horse Frames Inc.'s bid if the annual cost of money is 12%? Round your answer to the nearest cent. $ per frame