Question

Roscoe Construction Company (RCC) is a company specializing in building roads and highways. As a part of its business, it receives supplies of aggregate from two suppliers: Toorak Gravel (TG) and Kilda Corporation (KC). RCC purchasing has expressed a preference for KC based on price, but occasionally has to order from TG when KC cannot fill the order.

RCC has recently had problems with the quality and the timeliness of deliveries. When a supplier delivers a load to RCC, it goes through an initial inspection to assure it meets specification. If the load fails the initial inspection, it goes through a secondary inspection to determine the exact issue. Almost always, the issue can be resolved and the load can be used. The initial inspection costs $2,600 per load. A secondary inspection, which is more thorough, costs $250 per load. If a delivery is delayed, RCC has to hire temporary workers or pay overtime to some employees. The average cost of a delayed load is $3,600.

The following are summary statistics from last year's purchases from the two suppliers. Number of loads Average tons per load Average price per ton Number of initial inspections passed Number of delayed deliveries Toorak Gravel 100 10,000 6.00 94 10 Kilda Corp. 400 5,000 $ 5.90 300 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 intermediate calculations and 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 intermediate calculations and final answer to 2 decimal places.) X Answer is not complete. a. Maximum price $ 5.62 per ton b. Maximum price per ton

Answer 1

Tost perton Cost 0.52 Answer?- TG KC particulary Cost Gost perton Number of Tona (Average 1,000,000 2000,000 Top pet load x number of County) 100x10000) (400X 5600 Initial inspection cost Number of coadsx 2600) 260,000 0.26 1040,000 secondary Puspection cost 1500 0.0015 25.000 frumber of failed inspection Cico-94)250] x 250) (400-300) 250 10.036 Cost for delay delivering 36000 10.144 288000 (number of delayed delen X3600) Total Cost perton 0.2975 0.6765 0.0125 The cost perton KG works out to 6.306+0.2975) So, when contract exclusively provided to ke it would be expected that cost should not increase of procured from TG Since. 0.68 per ton in additional cost, the maximuw price Provided to be comes to 6.30-0.68 = 5.68 (2) So, maximum price provided to kc would be 5.62 6) Maxinwww privided to Ke would be (5.62+ 0.14) 576