Question

The following are summary statistics from last year's purchases from the two suppliers Kilda Toorak Gravel corp 400 Number of loads 1e0 Average tons per load Average price per ton Number of initial inspections passed Number of delayed deliveries 10,000 5,000 $ 5.90 6.00 94 300 10 80 The sales manager of Kilda Corporation has proposed to the purchasing manager at RCC that KC be given an exclusive contract to supply the aggregate. Assume that the total annual demand remains the same. If it receives the contract, KC will deliver the aggregate in the same average-sized load as it does currently Required: a. If KC receives the exclusive contract, assume the load quality and delivery timeliness will remain the same as current experience What is the maximum price RCC should offer KC for the exclusive contract? (Round your final answer to 2 decimal places.) b. Suppose KC guarantees that no deliveries will be delayed or it will repay RCC for the costs associated with the delays. What is the maximum price RCC should offer KC for the exclusive contract? (Round your final answer to 2 decimal places.) Maximum price Maximum price per ton a per ton b.

Answer 1

Annual demand of material by Rcc - (lopto x 100)+ (5000x400) 3000,00 tons No. of loads to be supplied by kc in case. to receives the exclusive contact. 3000 000 5oud 600 loads. MAMMAN Cost to Rcc if a load does not pass initial inspection & $5000 per load cast of initial inspection $1000 per load Average cost of a delayed wad : $2000 per load VUVITITITIITTI Now, Let us calculate the annual cost of material to RCC from the statistics from the a last year. Total Annual Cost Cost of purchases from TG + cost of purchases from &c 9 Material Cout of purchases e Material Cost + Initial inspection coat +. Secondary Inspection Cost & Cost for delayed deliveries.

Cost of Purchases .. from TG 999999997 (100 x 10000 6) + (100 x $1000) + [C100-01)$ 5 000] + (10 * $2009) $6 poopoo + $109,000 + $ 30,000 + $ 20,000 $ 6,150,000 Cost of Purchases from ke < (400 x 5000+ $5.9) + (400 * $1000) + [(400 - 300 x $5000] + (80 x $2000] $1,800,000 + $ 400,000 + $ 500,000+ $ 160,000 $12,860,000 Total Annual Costa $ 12, 860,000 of material $6, 150,000 + $ 19,010, 000 This implies that RCC will be meady maximum price to ko such that its does not exceeds the total cost of year purchases. to pay the total cost the last

- 400 400 No. of loads to be supplied 600 loads : kc during t (calculated previously Percentage of unītial uinspection passing 300 x 100 ie T5 / Percentage of delayed volaliveries 80 x 100 o de 20% for the current year, the number of loads is 600 and of the inspection passing percentage and deliverips timelines remains the same, then. No of initial inspection passing vopecuan passiny - 600 x 675). 600x 7 current year a 450 ( No of delayed deliveries in current year 6000 x 20%. 120 (a) - Let the manimum price to be offered by RCC to KC be se The equation will formed as a Total cost of material. Total icoot of material last year current year HHHHHHHHH

$19,010,000 -600 x 5000 x &x) + (600 x $1000] + [(6oo - 450) × $ 5000] + [120 x 2000] $19,010,000 3,000,000 x &x] + & 600,000+. $ 150,000 + $ 240,000 110,oo (3,000,000 x 8x] + $1590,000 $19,010,000 - $1.590,000 e 3000poo x $4 $17, 420,000 3,000,000 x $a 17,420, ooo 3,000,000 x ie x = $5.80666 . $5.81 Therefore, the maximum price Rcc should offer KC for exclusive contract is $5.81 per ton.

Kc guarantee no delayed deliveries or compensation associated with deland deliveries, the maximum price should be Let the monimum price be y. The equation is: Total cost of material Total cost of material last year in current year $ 19,0 10,000 + [500 x 500 x $y] +[600 x 41000]+ [(600 - 450) × $ 5000] + [0 x $2000] $19,010,000 + [3,000,000 x $y] + $600,000 + $ 150,00D $19,010,000 - $1,350,000 3000,000 $y $14,669,000 - 3,000,000 $y 4c 17,660,000 I 3,000,000 y $5.885 ie yo $5.89 Therefore, the monimum price that RCC Thoued a offer kc for no delayed deliver is $5.89 per ton a