Quiz Instructions Your company makes snow blowers and this winter they have been

Question

Quiz Instructions 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: Supplier 1 Price $90 Terms 2% 10 Net 45 Distance 200 Minimum order quantity 1500 Weight 20 lbs 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. Round all answers to the nearest whole number.

What is the Annual Purchase Cost? Round answer to nearest whole number.

Question

What is the Annual Holding Cost? Round answer to nearest whole number.

Question

For calculating freight cost, the freight rate would be  because (FTL/LTL)   is used.

Question

What is the anticipated Annual Freight Cost? Round answer to nearest whole number.

Question

Calculate the cost with Net 45 terms. Round answer to nearest whole number.

Question

Calculate the cost with 2% 10 terms. Round answer to nearest whole number.

Question

Which terms should be used?

Question

What is the TCO? Round answer to nearest whole number.

Explanation / Answer

Annual purchase cost= Annual purchase * Cost = 90000 * 90 = 8,100,000

Annual holding cost = Order /2 * Holding cost * Price = 1500 /2 * 90 * 25% = 16,875

Freight cost = distance * weight of item * Cost of LTL * (total purchase / one truckload) = 200 * 20 * 2 * (90000/1500) = 480,000

Net 45 terms, you have to pay in 45 days.

Benefit of delaying payment by 45 days= 810000* 12% * 45/ 360 = $ 12150

2 % 10 terms = If you pay within 10 days you get 2% discount

Benefit of 2%10 terms =  810000* (12% * 10/ 360 + 2%) = $18900

2% terms are beneficial.

Note - Solved 4 sub-parts as per Chegg Q&A gudeline.

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