Just-in-Time Principles Glow Bright Co. manufactures light bulbs. Glow Bright\'s
ID: 2460116 • Letter: J
Question
Just-in-Time Principles
Glow Bright Co. manufactures light bulbs. Glow Bright's purchasing policy requires that the purchasing agents place each quarter's purchasing requirements out for bid. This is because the Purchasing Department is evaluated solely by its ability to get the lowest purchase prices. The lowest cost bidder receives the order for the next quarter (90 working days).
To make its bulb products, Glow Bright requires 50,400 pounds of glass per quarter. Glow Bright received two glass bids for the third quarter, as follows:
Mid-States Glass Company: $23.00 per pound of glass. Delivery schedule: 50,400 (560 lbs. x 90 days) pounds at the beginning of July to last for 3 months.
Akron Glass Company: $23.15 per pound of glass. Delivery schedule: 560 pounds per working day (90 days in the quarter).
Glow Bright accepted Mid-States Glass Company's bid because it was the low-cost bid.
3. Considering just inventory financing costs, what is the additional cost per pound of Mid-States Glass Company's bid if the annual cost of money is 8%? Round to the nearest cent.
$ per lb.
Explanation / Answer
The quantity of material to be acquired at each order should consider the interest cost and storage cost of inventory.
Here we ordered inventory based on rate per pound.
Mid state glass will supply inventory at the begining of the quarter it will affect the fund flow of the Company. We have to store it for thrre months and the early payment will result a notional cost of interest.
Akron will provide inventory in JIT system interest and storage cost can be saved
Total Inventory: 50,400 lbs
Bid price of Mid state glass 23 per lbs
Total cost of inventory: paid at begining of july : 50,400 * 23 = 11,59.200/-
Interest cost @ 8 % for three months: 11,59,200 *8 % *3/12 = 23,184-
Additional cost per pound: 23,184/50,400 = .46 cent per lb
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