Kuantan ATV, Inc. assembles five different models of all-terrain vehicles (ATVs) from various ready-made components to serve the Las Vegas, Nevada, market. The company uses the same engine for all its ATVs. The purchasing manager, Ms. Jane Kim, needs to choose a supplier for engines for the coming year. Due to the size of the warehouse and other administrative restrictions, she must order the engines in lot sizes of 1,000 each. The unique characteristics of the standardized engine require special tooling to be used during the manufacturing process. Kuantan ATV agrees to reimburse the supplier for the tooling. This is a critical purchase, since late delivery of engines would disrupt production and cause 50 percent lost sales and 50 percent back orders of the ATVs. Jane has obtained quotes from two reliable suppliers but needs to know which supplier is more cost-effective. The terms of sale are 4/10 net 30 for Supplier 1 and 3/10 net 30 for Supplier 2. The data related to the costs of ownership associated with two reliable suppliers has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. 1. What is the total cost of ownership for each of the suppliers? Assume the buyer will take advantage of the largest discount. Do not round intermediate calculations. Round your answers to the nearest cent. Total Cost of Ownership Analysis Unit Price Supplier 1 Supplier 2 Requirements (annual forecast units) 15,000 1 to 999 units per order $510.00 $515.00 Lot size (Q) 1,000 1000 to 2999 units per order $504.00 $506.00 Weight per engine (lbs) 22 3000+ units per order $496.00 $496.00 Order processing cost (per order) $165.00 Tooling cost $22,000 $20,000 Inventory carrying rate (per year) 22% Terms (net 30) 4% 3% Cost of working capital (per year) 10% Distance (miles) 140 120 Profit margin 22% Supplier Quality Rating (defects) 3% 2% Price of finished ATV $4,600 Supplier Delivery Rating (lateness) 2% 3% Back-order cost (per unit) $19.00 Back-order lost sales 50% Supplier 1 Supplier 2 Late delivery lost sales 50% Total engine cost Cash discount (net 30) Other Information Cash discount (early payment) Truckload (TL>=40,000 lbs) $0.60 per ton-mile Tooling cost Less-than-truckload (LTL) $1.30 per ton-mile Transportation cost Per ton-mile 2,000 lbs per mile Ordering cost Days per year 365 Carrying cost Invoice payment period (days) 30 Quality cost Discount period (days) 10 Backorder cost Lost sales cost Total cost

Kuantan ATV, Inc. assembles five different models of all-terrain vehicles (ATVs) from various ready-made components to serve the Las Vegas, Nevada, market. The company uses the same engine for all its ATVs. The purchasing manager, Ms. Jane Kim, needs to choose a supplier for engines for the coming year. Due to the size of the warehouse and other administrative restrictions, she must order the engines in lot sizes of 1,000 each. The unique characteristics of the standardized engine require special tooling to be used during the manufacturing process. Kuantan ATV agrees to reimburse the supplier for the tooling. This is a critical purchase, since late delivery of engines would disrupt production and cause 50 percent lost sales and 50 percent back orders of the ATVs. Jane has obtained quotes from two reliable suppliers but needs to know which supplier is more cost-effective. The terms of sale are 4/10 net 30 for Supplier 1 and 3/10 net 30 for Supplier 2. The data related to the costs of ownership associated with two reliable suppliers has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. 1. What is the total cost of ownership for each of the suppliers? Assume the buyer will take advantage of the largest discount. Do not round intermediate calculations. Round your answers to the nearest cent. Total Cost of Ownership Analysis Unit Price Supplier 1 Supplier 2 Requirements (annual forecast units) 15,000 1 to 999 units per order $510.00 $515.00 Lot size (Q) 1,000 1000 to 2999 units per order $504.00 $506.00 Weight per engine (lbs) 22 3000+ units per order $496.00 $496.00 Order processing cost (per order) $165.00 Tooling cost $22,000 $20,000 Inventory carrying rate (per year) 22% Terms (net 30) 4% 3% Cost of working capital (per year) 10% Distance (miles) 140 120 Profit margin 22% Supplier Quality Rating (defects) 3% 2% Price of finished ATV $4,600 Supplier Delivery Rating (lateness) 2% 3% Back-order cost (per unit) $19.00 Back-order lost sales 50% Supplier 1 Supplier 2 Late delivery lost sales 50% Total engine cost Cash discount (net 30) Other Information Cash discount (early payment) Truckload (TL>=40,000 lbs) $0.60 per ton-mile Tooling cost Less-than-truckload (LTL) $1.30 per ton-mile Transportation cost Per ton-mile 2,000 lbs per mile Ordering cost Days per year 365 Carrying cost Invoice payment period (days) 30 Quality cost Discount period (days) 10 Backorder cost Lost sales cost Total cost

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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Total Cost of Ownership Analysis
			Unit Price	Supplier 1	Supplier 2
Requirements (annual forecast units)	15,000		1 to 999 units per order	$510.00	$515.00
Lot size (Q)	1,000		1000 to 2999 units per order	$504.00	$506.00
Weight per engine (lbs)	22		3000+ units per order	$496.00	$496.00
Order processing cost (per order)	$165.00		Tooling cost	$22,000	$20,000
Inventory carrying rate (per year)	22%		Terms (net 30)	4%	3%
Cost of working capital (per year)	10%		Distance (miles)	140	120
Profit margin	22%		Supplier Quality Rating (defects)	3%	2%
Price of finished ATV	$4,600		Supplier Delivery Rating (lateness)	2%	3%
Back-order cost (per unit)	$19.00
Back-order lost sales	50%			Supplier 1	Supplier 2
Late delivery lost sales	50%		Total engine cost
			Cash discount (net 30)
Other Information			Cash discount (early payment)
Truckload (TL>=40,000 lbs)	$0.60	per ton-mile	Tooling cost
Less-than-truckload (LTL)	$1.30	per ton-mile	Transportation cost
Per ton-mile	2,000	lbs per mile	Ordering cost
Days per year	365		Carrying cost
Invoice payment period (days)	30		Quality cost
Discount period (days)	10		Backorder cost
			Lost sales cost
			Total cost

			Lowest cost