Question:
Activity-Based Costing of Suppliers
Kinnear Plastics manufactures various components for the aircraft and marine industry. Kinnear buys plastic from two vendors: Tappan Corporation and Hill Enterprises. Kinnear chooses the vendor based on price. Once the plastic is received, it is inspected to ensure that it is suitable for production. Plastic that is deemed unsuitable is disposed of. The controller at Kinnear collected the following information on purchases for the past year:
|
|
Tappan
|
Hill
|
|
Total purchases (tons)
|
2,200
|
4,100
|
|
Plastic discarded
|
110
|
410
|
The purchasing manager has just received bids on an order for 150 tons of plastic from both Tappan and Hill. Tappan bid $741 and Hill bid $720 per ton.
Required
Assume that the average quality, measured by the amounts discarded from the two companies, will continue as in the past. Which supplier would you recommend that the purchasing manager select? Explain.