QUESTION 4:

Argos Company needs a total of 125 tonnes of sheet steel50 tonnes of 2-inch width and 75 tonnes of 4-inch widthfor a customer's job. Argos can purchase the sheet steel in these widths directly from a steel manufacturer (Actium Corporation) or it can purchase sheet steel from Actium that is 24 inches wide and have it slit into the desired widths by Heraclion Inc. Both vendors are local and have previously supplied materials to Argos.

Heraclion specializes in slitting sheet steel provided by a customer into any desired width. When negotiating a contract, Heraclion tells its customers there is a scrap loss in the slitting operation, but this loss has never exceeded 2.5 percent of input tonnes. Heraclion recommends if a customer has a specific tonnage requirement, it should supply an adequate amount of steel to yield the desired quantity. Heraclion's charges for steel slitting are based on good output, not input handled.

The 24-inch wide sheet steel is a regular stock item of Actium and can be shipped to Heraclion within five days after receipt of Argos's purchase order. If Actium is to do the slitting, shipment to Argos would be scheduled for 15 days after receipt of Argos's purchase order. Heraclion has quoted delivery at 10 days after receipt of the sheet steel. In prior dealings, Argos has found both Actium and Heraclion to be reliable vendors with high quality products.

Argos has received the following price quotations from Actium and Heraclion:

Actium Corporation Rates Size Gauge Quantity Cost Per Tonne 2-inch 14 50 tonnes $210 4-inch 14 75 tonnes 200 24-inch 14 125 tonnes 180 Heraclion Inc. Steel Slitting Rates Price Per Tonne Size Gauge Quantity of Output 2-inch 14 50 tonnes $18 4-inch 14 75 tonnes 15 Freight and Handling Charges Destination Cost Per Tonne Actium to Argos $10.00 Actiom to Heraction 5.00 Heraclion to Argos 7.50Argos Company Analysis 2-inch 4-inch ShippingHeradion Company Analysis Cost of steel from Actium Cost of shipping from Actium to Heraction Cost of slitting at Pre-cut: 2-inch 100 4-inch Cost of shipping to ArgosArgos Company Analysis Cost of steel from Actium Cost of shipping from Actium to Heraction Cost of slitting at pre-cut: 2-inch 4-inch Cost of shipping to Argos Cost of storage For comparison purposes, the cost for immediate needs is: Cost of steel Cost of shipping from Actium to Heraction Cost of slitting: 2-inch 4-inch Cost of shipping to Argos Cost of storage 1080