Question

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 57,600 pounds of glass per quarter. Soft Glow received two glass bids for the third quarter, as follows:

• Mid-States Glass Company: $24.00 per pound of glass. Delivery schedule: 57,600 (640 lbs. x 90 days) pounds at the beginning of July to last for 3 months.
• Cleveland Glass Company: $24.15 per pound of glass. Delivery schedule: 640 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.

Considering just inventory financing costs, what is the additional cost per pound of Mid-States Glass Company's bid if the annual cost of money is 8%? Round to the nearest cent.
$_____ per lb.

Answer 1

Answer

Average Inventory for 3 months of Mid-States Glass Company = (57600+0)/2=$ 28800

Cost per Unit $24.00

Total cost = 24 * 28,800 = $691200

Finance cost = (691200*0.08)/(3/12) = $13824

Additional cost per pound of Mid-States Glass Company's bid = $13824/57600 = $0.24 per lb.

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