PR 13-1A Lean principles Obj. 1 Ceiling Stars, Inc., manufactures light bulbs. Its purchasing policy requires that the purchasing agents place each quarter's purchasing requirements out for bid. This is because the Purchasing Depart- ment is evaluated solely by its ability to get the lowest purchase prices. The lowest bidder receives the order for the next quarter (90 working days). To make its bulb products, Ceiling Stars requires 45,000 pounds of glass per quarter. Ceiling Stars received two glass bids for the third quarter, as follows: Provo Glass Company: $30.00 per pound of glass. Delivery schedule: 45,000 (500 lbs. x 90 days) pounds at the beginning of July to last for 3 months. Orem Glass Company: $30.20 per pound of glass. Delivery schedule: 500 pounds per working day (90 days in the quarter). Ceiling Stars accepted Provo Glass Company's bid because it was the low-cost bid. Instructions 1. 2. Comment on Ceiling Stars' purchasing policy What are the additional (hidden) costs, beyond price, of Provo Glass Company's bid? Why weren't these costs considered? 3. Considering only inventory financing costs, what is the additional cost per pound of Provo Glass Company's bid if the annual cost of money is 8%? (Hint: Determine the average value of glass inventory held for the quarter and multiply by the quarterly interest charge, then divide by the number of pounds.)