Northcutt manufactures high-end racing bikes and is looking for a source of gear
ID: 334703 • Letter: N
Question
Northcutt manufactures high-end racing bikes and is looking for a source of gear sprocket sets. Northcutt would need 1,550 sets a month. Supplier A is a domestic firm, and Suppliers B and C are located overseas. Cost information for the suppliers is as follows: Supplier A-Price of $100 per set, plus packing cost of $2.00 per set. Total inland freight costs for all 1,550 units would be $800 per month Supplier B Price of $96 per set, plus packing cost of $3.50 per set. International transportation costs would total $3,500 per month, while total inland freight costs would be $800 per month Supplier C-Price of $93 per set, plus packing cost of $3.00 per set. International transportation costs would total $5,000 per month, while total inland freight costs would be $1,000 per month. a. The total landed cost per unit for Supplier A is S(Enter your response rounded to two decimal places.) The total landed cost per month for Supplier A is $(Enter your response as a whole number.) The total landed cost per unit for Suppler B is -Enter your response rounded to two decimal places.) The total landed cost per month for Supplier B is (Enter your response as a whole number.) The total landed cost per unit for Supplier C is $1 . (Enter your response rounded to two decimal places.) The total landed cost per month for Supplier C is $ (Enter your response as a whole number.) Supplier is the least expensive. Supplieris the most expensive b. Suppose that international and inland freight costs are fixed for volumes up to 4,000 units a month Supplierhas the lowest landed cost if demand was cut in half. Supplierhas the lowest landed cost if demand is doubled The landed cost of Supplier is most sensitive to volume changes.Explanation / Answer
Demand per month- 1550 sets
Supplier A-
Price per set = $100 per set
Packaging cost of 2$ per set
Total Freight Cost = $800 per month for 1550 sets
Total Landed Cost per month for 1550 sets = 1550*100 + 1550*2 + 800 = $ 158,900
Total landed cost per unit = 158900/1550 = $ 102.52 = $ 103
Supplier B-
Price per set = $96 per set
Packaging cost of 3.50$ per set
Total Freight Cost = $3500 per month for 1550 sets
Total Landed Cost per month for 1550 sets = 1550*96 + 1550*3.50 + 3500 = $ 157725
Total landed cost per unit = 158900/1550 = $ 101.76 = $ 102
Supplier C-
Price per set = $93 per set
Packaging cost of 3.00$ per set
Total Freight Cost = $5000 per month for 1550 sets
Total Landed Cost per month for 1550 sets = 1550*93 + 1550*3.00 + 5000 = $ 153800
Total landed cost per unit = 158900/1550 = $ 99.23 = $ 99
Supplier C is the least expensive
Supplier A is the most expensive
b. Freight Costs are fixed for every supplier upto 4000 units, therefore we wont take it into consideration.
Suppose demand is cut in half, that is demand is 775 sets which is less than 4000 sets, Supplier with lowest (cost per set + cost of packaging) would have lowest landed cost.
Lets calculate the cost per set + cost of packaging per set for different suppliers-
Supplier A = cost per set + cost of packaging per set = 100 + 2 = $102
Supplier B = cost per set + cost of packaging per set = 96 + 3.50 = $99.50
Supplier C = cost per set + cost of packaging per set = 93 + 3.00 = $96
Therefore Supplier C has the lowest landed cost if demand was cut in half.
If demand is doubled, that is it becomes 1550*2 = 3100, its still less than 4000 per month, thus freight cost would be same for every supplier. Thus Supplier C would still has the lowest landed cost if demand is doubled.
Sensitivity describe the magnitude of change in output because of a unit change in the input. Therefore supplier with the highest cost per set + cost of packaging per set would have most sensitivity. Thus Supplier A is most sensitive to volume changes.
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