Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
16th Edition
ISBN: 9780134475585
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Chapter 20, Problem 20.35P
Supply-chain effects on total relevant inventory cost. Peach Computer Co. outsources the production of motherboards for its computers. It is currently deciding which of two suppliers to use: Alpha or Beta. Due to differences in the product failure rates in the two companies, 5% of motherboards purchased from Alpha will be inspected and 25% of motherboards purchased from Beta will be inspected. The following data refer to costs associated with Alpha and Beta:
| Alpha | Beta | |
| Number of orders per year | 50 | 50 |
| Annual motherboards demanded | 10,000 | 10,000 |
| Price per motherboard | $108 | $105 |
| Ordering cost per order | $13 | $10 |
| inspection cost per unit | $6 | $6 |
| Average inventory level | 100 units | 100 units |
| Expected number of stockouts | 100 | 300 |
| Stockout cost (cost of rush order) per stockout | $4 | $6 |
| Units returned by customers for replacing motherboards | 50 | 500 |
| Cost of replacing each motherboard | $30 | $30 |
| Required annual |
10% | 10% |
| Other carrying cost per unit per year | $3.50 | $3.50 |
- 1. What is the relevant cost of purchasing from Alpha and Beta?
Required
- 2. What factors other than cost should Peach consider?
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Polar Bear
Computer Co. outsources the production of motherboards for its computers. It is currently deciding which of two suppliers to use:
Alpha
or
Beta.
Due to differences in the product failure rates in the two companies,
10%
of motherboards purchased from
Alpha
will be inspected and
30%
of motherboards purchased from
Beta
will be inspected. The following data refer to costs associated with
Alpha
and
Beta:
Number of orders per year
90. 90
Annual motherboards demanded
19,000 19,000
Price per motherboard
$96 $90
Ordering cost per order
$10 $11
Inspection cost per unit
$5 $5
Average inventory level
200 units 200 units
Expected number of stockouts
200 600
Stockout cost (cost of rush order) per stockout
$3 $7
Units returned by customers for replacing motherboards
90 900
Cost of replacing each motherboard
$23 $23
Required annual return on investment
10% 10%
Other carrying cost per unit per year
$2.30 $2.30
Requirement 1. What is the relevant cost of purchasing from…
Chapter 20 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Ch. 20 - Why do better decisions regarding the purchasing...Ch. 20 - Name six cost categories that are important in...Ch. 20 - What assumptions are made when using the simplest...Ch. 20 - Give examples of costs included in annual carrying...Ch. 20 - Give three examples of opportunity costs that...Ch. 20 - What are the steps in computing the cost of a...Ch. 20 - Why might goal-congruence issues arise when...Ch. 20 - JIT purchasing has many benefits but also some...Ch. 20 - What are three factors causing reductions in the...Ch. 20 - You should always choose the supplier who offers...
Ch. 20 - Prob. 20.11QCh. 20 - What are the main features of JIT production, and...Ch. 20 - Distinguish inventory-costing systems using...Ch. 20 - Describe three different versions of backflush...Ch. 20 - Discuss the differences between lean accounting...Ch. 20 - The order size associated with the...Ch. 20 - Prob. 20.17MCQCh. 20 - Prob. 20.18MCQCh. 20 - Lyle Co. has only one product line. For that line,...Ch. 20 - Just-in-time inventory assumes all of the...Ch. 20 - Economic order quantity for retailer. Wonder Line...Ch. 20 - Economic order quantity, effect of parameter...Ch. 20 - EOQ for a retailer. The Fabric World sells fabrics...Ch. 20 - EOQ for manufacturer. Sk8 Company produces...Ch. 20 - Sensitivity of EOQ to changes in relevant ordering...Ch. 20 - JIT production, relevant benefits, relevant costs....Ch. 20 - Backflush costing and JIT production. Grand...Ch. 20 - Backflush costing, two trigger points, materials...Ch. 20 - Backflush costing, two trigger points, completion...Ch. 20 - Prob. 20.30PCh. 20 - Prob. 20.31PCh. 20 - Prob. 20.32PCh. 20 - Prob. 20.33PCh. 20 - JIT purchasing, relevant benefits, relevant costs....Ch. 20 - Supply-chain effects on total relevant inventory...Ch. 20 - Supply-chain effects on total relevant inventory...Ch. 20 - Backflush costing and JIT production. The Acton...Ch. 20 - Backflush, two trigger points, materials purchase...Ch. 20 - Backflush, two trigger points, completion of...Ch. 20 - Lean accounting. Reliable Security Devices (RSD)...Ch. 20 - JIT production, relevant benefits, relevant costs,...
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