Managerial Accounting
Managerial Accounting
15th Edition
ISBN: 9781337912020
Author: Carl Warren, Ph.d. Cma William B. Tayler
Publisher: South-Western College Pub
Question
Chapter 13, Problem 1PB

1.

To determine

Comment on the purchasing policy of Company BM.

2.

To determine

Identify the additional costs involved with the bid of Company IFF beyond price, and the reasons for ignoring them.

3.

To determine

Compute the additional costs per pound for the bid of Company IFF, if the annual cost of money is 8%.

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HD Hogg Motorcycle Company manufactures a variety of motorcycles. Hogg’s purchasingpolicy requires that the purchasing agents place each quarter’s purchasing requirementsout for bid. This is because the Purchasing Department is evaluated solely by its abilityto get the lowest purchase prices. The lowest cost bidder receives the order for the nextquarter (90 days). To make its motorcycles, Hogg requires 4,500 frames per quarter. Hoggreceived two frame bids for the third quarter, as follows:• Famous Frames, Inc.: $301 per frame. Delivery schedule: 50 frames per working day(90 days in the quarter).• Iron Horse Frames Inc.: $300 per frame. Delivery schedule: 4,500 (50 frames × 90 days)frames at the beginning of July to last for three months.Hogg accepted Iron Horse Frames Inc.’s bid because it was the low-cost bid.   Instructions1. Comment on Hogg’s purchasing policy.2. What are the additional (hidden) costs, beyond price, of Iron Horse FramesInc.’s bid? Why weren’t these costs…
Bright Night, 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, Bright Night requires 36,000 pounds of glass per quarter. Bright Night received two glass bids for the third quarter, as follows:• Central Glass Company: $30.00 per pound of glass. Delivery schedule: 36,000 (400 lbs. × 90 days) pounds at the beginning of July to last for 3 months.• Ithaca Glass Company: $30.20 per pound of glass. Delivery schedule: 400 pounds per working day (90 days in the quarter).Bright Night accepted Central Glass Company’s bid because it was the low-cost bid.Instructions1. Comment on Bright Night’s purchasing policy.2. What are the additional (hidden) costs, beyond price, of Central Glass…

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Managerial Accounting

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  • Lean principles Bright Night, Inc., manufactures light bulbs. Its purchasing policy requires that the purchasing agents place each quarters 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, Bright Night requires 36,000 pounds of glass per quarter. Bright Night received two glass bids for the third quarter, as follows: Central Glass Company: 30.00 per pound of glass. Delivery schedule: 36,000 (400 lbs. x 90 days) pounds at the beginning of July to last for 3 months. Ithaca Glass Company: 30.20 per pound of glass. Delivery schedule: 400 pounds per working day (90 days in the quarter). Bright Night accepted Central Glass Companys bid because it was the low-cost bid. Instructions 1. Comment on Bright Nights purchasing policy. 2. What are the additional (hidden) costs, beyond price, of Central Glass Companys bid? Why werent these costs considered? 3. Considering only inventory financing costs, what is the additional cost per pound of Central Glass Companys bid if the annual cost of money is 8%? (Hint: Determine the average value of glass inventory held for the quarter and multiply by the quarterly interest charge, then divide by the number of pounds.)
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