Question 1
Your company makes snow blowers and this winter they have been selling very well. You are evaluating a quote from a supplier for engines that power your snow blowers. The quote is as follows:
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Supplier 1
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Price
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$90
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Terms
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2% 10 Net 45
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Distance
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200
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Minimum order quantity
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1500
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Weight
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20 lbs
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Assume the following:
Annual volume for engines is expected to be 90,000 units
The price is constant regardless of volume or order quantity
Inventory holding rate is 25%
Working capital costs are 12%
Your order quantity will always equal the minimum order quantity for the supplier
Your freight rate is $1.75 per ton mile for a full truckload (40,000 lbs) and $2.00 for a less-than-truckload shipment
There are 360 days in a year.
There are 2000 lbs/ton
Order costs, tooling costs, quality costs, late-delivery costs should be ignored.
What is the total cost of ownership for supplier 1? (Show all your work.)