Question

Maggie Dakis is a senior buyer of fruit products for Fresh Foods, a major United States (U.S.) multinational food processing company. This company, based in California, uses a wide variety of fruit concentrates, purees, flavors, and extracts in many of its popular food products. One of Maggie’s responsibilities is to negotiate annual purchase contracts for these ingredients. One such ingredient, mango puree, is grown and harvested on a seasonal basis in various countries around the world. Maggie is currently examining the costs associated with using one of his existing suppliers, a Philippine grower/processor. Fresh Foods has used this supplier’s high quality product for a number of years. Farmers grow the product in a remote part of the Philippines and transport it to the preprocessing plant where it is pureed and packaged for transoceanic shipment. This particular variety of mango is highly prized for its flavor, which the aseptic method of processing used by the supplier helps maintain. Unfortunately, guerilla activity by rebels has recently caused some problems for growers in this part of the Philippines. 
The supplier, Phillipo Processing, aseptically packages the mango puree, currently priced at $0.30/pound, in foil bags, each containing 50 pounds of product, which workers then place into corrugated boxes. The boxes are stacked on pallets, 40 to a pallet, for loading into overseas shipping containers. Each 40 foot container holds 20 pallets and arrives via ocean freighter. The ocean freight charge is $2,000 per container. Once the containers reach the U.S. port, a trucking company moves each container to a local warehouse for storage at a charge of $250 per container. U.S. Customs calculates import duties to be 10% of the shipments original purchase price excluding freight charges. Fresh Foods requires one container load per month. Fresh Foods puts each container in a public warehouse until needed for processing (average storage is one month). The monthly storage charge is $6.00 per pallet. In addition, the warehouse charges a one-time in/out fee of $6.25 per pallet to cover handling and administrative costs. Fresh Foods annual inventory carrying charge is 20% annually, which it applies against the unit price of material in storage at the warehouse. When a container of mango puree is required at the plant, a local freight company moves the container from the warehouse, which costs $8 per pallet. The company estimates that incoming receiving and quality control procedures cost $3 per pallet. Because of the nature of the product and the distance involved in purchasing and storing the mango puree, the company estimates it incurs a loss of 3% of the total puree purchased. Product engineers calculate the budgeted factory yield of the mango puree when blending into company products is 98%; this means the company wastes 2% of the product by volume during production and this is not recoverable. In addition to the other costs noted here, corporate accounting policy requires that cost estimates include a 17% assessment on purchased product unit cost to cover general and administrative overhead costs at Fresh Foods. Occasionally, undetected spoilage of mango puree will require removing the product from grocer shelves. Out of pocket costs typically total $25,000 for each incident; these costs are not recoverable from the supplier. The company’s records indicate that such an incident occurs about once every six months.

1. Identify the identified cost categories besides purchase price that apply to the mango puree.

2. Draw a picture of the supply chain and overlay the costs on the supply chain.

3. Determine the total landed cost per pound to Fresh Foods.

Answer 1

As HOMEWORKLIB Rules I answered first question completely.

If you have any doubts you can ask me.

Thank you