Question

Kinnear Plastics manufactures various components for the aircraft and marine industry. Kinnear buys plastic from two vendors: Tappan Corporation and Hill Enterprises. Kinnear chooses the vendor based on price. Once the plastic is received, it is inspected to ensure that it is suitable for production. Plastic that is deemed unsuitable is disposed of.

The controller at Kinnear collected the following information on purchases for the past year:

	Tappan	Hill
Total purchases (tons)	4,500	7,500
Plastic discarded	135	375

The purchasing manager has just received bids on an order for 170 tons of plastic from both Tappan and Hill. Tappan bid $1,358 and Hill bid $1,349 per ton.

Required:

a. Assume all else remains the same. What bid by Tappan would make Kinnear indifferent between buying from Tappan or Hill? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

Ans:

A).

Particulars	Tappan	Hill
Total Purchases	4,500	7,500
Plastic Discarded	135	375
Percentage of Discarded product{Plastic discarded/ Total Purchases)	3.00%	5.00%
Percentage of Good quality Product{100-% of discarded)	97%	95%
Quoted Price	1,358	1,349
Effective cost per ton{quoted price/ % of good quality}	1,400	1,420

As effective cost per ton of Tappan is lower than Hill, then Tappan should be selected,

Bid By tappan that will Make Kinnear indifferent between buying from Tappan or Hill would be:

bid price Of T/Percentage of good quality product= Effective cost per ton of H

Bid price of T/97%= 1,420

Bid price of T= 1,420*97%

= $ 1,377.40