Gafari File Edt View History Bookmarks Window Help 73%Tue 2:29 PM Q lomework: Ho
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Gafari File Edt View History Bookmarks Window Help 73%Tue 2:29 PM Q lomework: Homework # 7 core: 0 of 1 pt roblem 4 wo different suppliers have quoted diffenent unit prices and payment windows for a commodity part used by Save 1of3 (0 complete) HW Score: 096,0 of 3 pts Question Help * an industrial company The purchasing manager for the part will decide on which supplier to use based on a price analysis that adjusts or the dierence in the payment windows, thereby reflecting the opportunity cost of making earier payments. The relevant information is as follows Supplier B 63 35 Unit Price 62.00 Payment Window (days) the arvu-cost ofca tal for company s 55%, which suppler is cerethe beter prce genthe opportunty cost reared by making a payment-fSpple A is chosen? me ehtive cost of purchasing from Sppler Ais?per urt (Enter your response orded to t.O dorwplaces) Enter your answer in the answer box and then click Check Answer Clear AExplanation / Answer
1. The better pice is offered by Supplier A even after considering the opportunity cost beacue of an early payment (20 days early) refer the calculation below
For supplier A, the opportunity cost on account of early payment is clculated as follows
Price =$ 62
Cost of Capital =5.5%
Opportunity cost per year on an amout of $62 = 62x 0.055 = $3.41 for 1 year. here the early payment is by 20 days only.
Hence the opportunity cost for 20 days = 3.41 x 20/365 = $0.187
Total cost for Supplier A =62 +0.187 = $62.187
the above value is still lesser than that of Supplier b with 45 days payment terms.Hence Supplier A is chosen
2. The effective cost of purchasing from Supplier B is $62.187
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