Question

Hult Games buys electronic components for manufacturing from two suppliers, Milan Components and Dundee Parts. If the components are delivered late, the shipment to the customer is delayed. Delayed shipments lead to contractual penalties that call for Hult to reimburse a portion of the purchase price to the customer.

During the past quarter, the purchasing and delivery data for the two suppliers showed the following.

Total purchases (cartons) Average purchase price (per carton) Number of deliveries Percentage of late deliveries Milan 84,000 $ 21.00 80 25% Dundee 36,000 $ 23 20 10% Total 120,000 $ 21.60 100 22%

	Milan			Dundee			Total
Total purchases (cartons)		84,000			36,000			120,000
Average purchase price (per carton)	$	21.00		$	23		$	21.60
Number of deliveries		80			20			100
Percentage of late deliveries		25	%		10	%		22	%

The Accounting Department recorded $479,700 as the cost of late deliveries to customers.

Required:

Assume that the average quality, measured by the percentage of late deliveries, and prices from the two companies will continue as in the past. What is the effective price for components from the two companies when late deliveries are considered? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Answer 1

Workings Effective Cost per Carton 25.88 24.95 Milan Dundee Average purchase price per carton (a) Cost of late delivery per carton (b) Percentage of late delivery (C) Expected cost of late delivey per ton (d) = (b*c) Effective price per ton (a+d) Milan Dundee 21 23 19.5 19.5 25% 10% 4.875 1.95 25.88 24.95 Cost of late delivery per carton = Total cost of late delivery/Number of cartoons delivered late = 479,700/24,600 = 19.5 No of cartoons delivered late = (84,000*25%) + (36,000*10%) = 21,000 + 3,600 = 24,600 Please do positive ratings (Like or thumps up). Thank you. Please do comments if you have any doubts Note: