Question

Lean Principles

Lean Principles Soft Glow, Inc. manufactures light bulbs. Its purchasing policy requires that the purchasing agents place each quarter's purchasing requirements out for bid. This is because the Purchasing Department is evaluated solely by its ability to get the lowest purchase prices. The lowest bidder receives the order for the next quarter (90 working days). To make its bulb products, Soft Glow requires 48,600 pounds of glass per quarter. Soft Glow received two glass bids for the third quarter, as follows: • Mid-States Glass Company: $27.00 per pound of glass. Delivery schedule: 48,600 (540 lbs. x 90 days) pounds at the beginning of July to last for 3 months. • Cleveland Glass Company: $27.15 per pound of glass. Delivery schedule: 540 pounds per working day (90 days in the quarter). Soft Glow accepted Mid-States Glass Company's bid because it was the low-cost bid.

Answer 1

Ans:  Third quarter -Balance: 48600 pounds

Third Quarter Balance September : 0 pounds

Average pounds for the quarter :48600/2= 24300 pounds

Total Investment (24300*$27 per pound of glass) =$656,100

Interest rate per quarter =(8%/4) =2%

Inventory financing per quarter =$656,100*2%=$13,122

No of pounds per quarter =48600

Additional cost per pound =$12636/48,600

                                         =$0.26 per pound.