Chapter 20, Problem 20.35P

Supply-chain effects on total relevant inventory cost. Peach Computer Co. outsources the production 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 following data refer to costs associated with Alpha and Beta:

	Alpha	Beta
Number of orders per year	50	50
Annual motherboards demanded	10,000	10,000
Price per motherboard	$108	$105
Ordering cost per order	$13	$10
inspection cost per unit	$6	$6
Average inventory level	100 units	100 units
Expected number of stockouts	100	300
Stockout cost (cost of rush order) per stockout	$4	$6
Units returned by customers for replacing motherboards	50	500
Cost of replacing each motherboard	$30	$30
Required annual return on investment	10%	10%
Other carrying cost per unit per year	$3.50	$3.50

1. 1. What is the relevant cost of purchasing from Alpha and Beta?

Required

1. 2. What factors other than cost should Peach consider?