Supply-chain effects on total relevant inventory cost. Peach Computer Co. outsources the pro- duction of motherboards for its computers. It is currently deciding which of two suppliers to use: Alpha or Beta. Due to differences in the product failure rates in the two companies, 5% of motherboards purchased from Alpha will be inspected and 25% of motherboards purchased from Beta will be inspected. The follow- ing data refer to costs associated with Alpha and Beta: Alpha Beta Number of orders per year 50 50 Annual motherboards demanded 10,000 $108 10,000 $105 Price per motherboard Ordering cost per order Inspection cost per unit Average inventory level Expected number of stockouts Stockout cost (cost of rush order) per stockout Units returned by customers for replacing $13 $10 $6 $6 100 units 100 units 100 300 $4 $6 50 500 motherboards Cost of replacing each motherboard Required annual return on investment Other carrying cost per unit per year $30 $30 10% 10% $3.50 $3.50

Supply-chain effects on total relevant inventory cost. Peach Computer Co. outsources the pro- duction of motherboards for its computers. It is currently deciding which of two suppliers to use: Alpha or Beta. Due to differences in the product failure rates in the two companies, 5% of motherboards purchased from Alpha will be inspected and 25% of motherboards purchased from Beta will be inspected. The follow- ing data refer to costs associated with Alpha and Beta: Alpha Beta Number of orders per year 50 50 Annual motherboards demanded 10,000 $108 10,000 $105 Price per motherboard Ordering cost per order Inspection cost per unit Average inventory level Expected number of stockouts Stockout cost (cost of rush order) per stockout Units returned by customers for replacing $13 $10 $6 $6 100 units 100 units 100 300 $4 $6 50 500 motherboards Cost of replacing each motherboard Required annual return on investment Other carrying cost per unit per year $30 $30 10% 10% $3.50 $3.50

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter3: Cost Behavior

Section: Chapter Questions

Problem 34P: Kimball Company has developed the following cost formulas:...

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