P20-35 (similar to) Question Help Panda Computer Co. outsources the production of motherboards for its computers. It is currently deciding which of two suppliers to use: Alpha or Beta. Due to differences in the product failure rates in the two companies, 5% of motherboards purchased from Alpha will be inspected and 30% of motherboards purchased from Beta will be inspected. The following data refers to costs associated with Alpha and Beta: EClick the icon to view the data.) Requirements 1. What is the relevant cost of purchasing from Alpha and Beta? 2. What factors other than cost should Panda consider? AlPha Beta Number of orders per year 50 50 13,000 Annual motherboards demanded 13,000 Price per motherboard 97 $ 92 Ordering cost per order 12 9 Inspection cost per unit $ 4 4 Average inventory level 100 units 100 units 300 Expected number of stockouts 100 Stockout cost (cost of rush order) per stockout 2 5 Units returned by customers for replacing motherboards 50 500 Cost of replacing each motherboard 22 Required annual return on investment 10% 10% Other carrying cost per unit per year 2.70 2.70 22 Calculate the relevant cost of purchasing from Alpha and Beta. Alpha Beta Purchase costs Ordering costs Inspection costs Required annual return on investment Stockout costs Return costs Other carrying costs Total cost Requirement 2. What factors other than cost should Panda consider? Let's begin by determining which of the two companies will save Panda money and by how much. If the total cost of Alpha is higher than Beta will save Panda money. In contrast, if Alpha is lower, than Alpha will save them money Beta's total cost Alpha's total cost Savings