Question

Roscoe Construction Company (RCC) is a company specializing in building roads and highways. As a part of its business, it receives supplies of aggregate from two suppliers: Toorak Gravel (TG) and Kilda Corporation (KC). RCC purchasing has expressed a preference for KC based on price, but occasionally has to order from TG when KC cannot fill the order.

RCC has recently had problems with the quality and the timeliness of deliveries. When a supplier delivers a load to RCC, it goes through an initial inspection to assure it meets specification. If the load fails the initial inspection, it goes through a secondary inspection to determine the exact issue. Almost always, the issue can be resolved and the load can be used. The initial inspection costs $1,000 per load. A secondary inspection, which is more thorough, costs $5,000 per load. If a delivery is delayed, RCC has to hire temporary workers or pay overtime to some employees. The average cost of a delayed load is $2,000.

The following are summary statistics from last year's purchases from the two suppliers.

	Toorak Gravel			Kilda Corp.
Number of loads		100			400
Average tons per load		10,000			5,000
Average price per ton	$	6.00		$	5.90
Number of initial inspections passed		94			300
Number of delayed deliveries		10			80

Required:

Calculate the effective cost of a ton of aggregate from the two suppliers, assuming that last year's experience is representative.

Answer 1

The Solution is as follows;