Question

Hult Games buys electronic components for manufacturing from two suppliers, Milan Components and Dundee Parts. If the components are delivered late, the shipment to the customer is delayed. Delayed shipments lead to contractual penalties that call for Hult to reimburse a portion of the purchase price to the customer.

During the past quarter, the purchasing and delivery data for the two suppliers showed the following:

	Milan			Dundee			Total
Total purchases (cartons)		140,000			60,000			200,000
Average purchase price(per carton)	$	14		$	16		$	14.60
Number of deliveries		80			20			100
Percentage of late deliveries		25	%		10	%		22	%

The Accounting Department recorded $779,000 as the cost of late deliveries to customers.

Assume that the average quality, measured by the percentage of late deliveries, and prices from the two companies will continue as in the past. What is the effective price for components from the two companies when late deliveries are considered? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Milan

Dundee

Assume that the average quality, measured by the percentage of late deliveries, and prices from the two companies will continue as in the past.

Required:

What percentage of late deliveries by Milan would make Hult indifferent between buying from Milan Components and Dundee Parts? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 1 decimal place (i.e., 32.1).)

Percentage of late deliveries

(Could you please show how to get the answers) Thank you

Answer 1

Answer:

The Accounting Department recorded $779,000 as the cost of late deliveries to customers.

Number of cartons delivered late = Total purchases (cartons) of Milan * Percentage of late deliveries of Milan + Total purchases (cartons) of Dundee * Percentage of late deliveries of Dundee = 140,000 * 25% + 60,000 * 10% = 41,000

Cost of late deliveries per ton = Total cost of late deliveries / Number of cartons delivered late

= $779,000 / 41,000 = $19

Answer 2:

Effective cost of components per carton from Dundee = $17.90

Average price per carton from Milan = $14.00

Hult will be indifferent between buying from Milan Components and Dundee Parts if effective price per carton from Milan and Dundee is same.

Hence,

Expected cost of late delivery per ton from Milan have to be = $17.90 - $14.00 = $3.90

Percentage of late delivery from Milan have to be = $19 / $3.90 = 20.5%