Question

Required information

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Kinnear Plastics manufactures various components for the aircraft and marine industry. Kinnear buys plastic from two vendors: Tappan Corporation and Hill Enterprises. Kinnear chooses the vendor based on price. Once the plastic is received, it is inspected to ensure that it is suitable for production. Plastic that is deemed unsuitable is disposed of.

The controller at Kinnear collected the following information on purchases for the past year:

	Tappan	Hill
Total purchases (tons)	5,500	8,500
Plastic discarded	165	425

The purchasing manager has just received bids on an order for 190 tons of plastic from both Tappan and Hill. Tappan bid $1,552 and Hill bid $1,539 per ton.

Required:

1-a. Assume that the average quality, measured by the amounts discarded from the two companies, will continue as in the past. What is the effective cost per ton for both Tappan and Hill? (Do not round intermediate calculations.)

Answer 1

Particulars		Tappan	Hill
Plastic required (tons) (A)		190	190
Bid per ton ($) (B)		1552	1539
Plastic discarded (% on past year purchases) (%)		=(165/5500)*100	=(425/8500)*100
		3%	5%
Plastic discarded (Tons) (C)		= 190 * 3%	= 190 * 5%
		5.7	9.5
Total Cost (A*B) = D		294880	292410
Plastic excl. discarded (A - C) = E		184.3	180.5
Effective cost per ton D/E		1600	1620