Chapter 20, Problem 20.36P

Supply-chain effects on total relevant inventory cost. Couture Jeans orders high-quality denim fabric from two different suppliers: Designer Fabrics and Cannon Cotton. Couture would like to use only one of the suppliers in the future. Due to variations in quality, Couture would need to inspect 20% of Designer’s 30-yard bolts (rolls) and 30% of Cannon’s. The following data refer to costs associated with the two suppliers.

	Designer	Cannon
Number of orders per year	50	50
Annual bolts demanded	2,000	2,000
Price per bolt	$ 200	$ 195
Ordering cost per order	$ 150	$ 200
Inspection cost per bolt	$ 30	$ 30
Average inventory level	20	20
Expected number of stockouts	10	10
Stockout cost of rush order	$ 20	$ 15
Estimated number of jeans returned by customers because of defective fabric	100	200
Cost of fixing jeans returned by customers because of defective fabric	$ 25	$ 25
Opportunity cost of investment	15%	15%
Other carrying costs per bolt per year	$ 10	$ 10

1. 1. What is the relevant cost of purchasing from Designer Fabrics and Cannon Cotton?

Required

1. 2. What factors other than cost should Couture Jeans consider?