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Chapter 10 Assignment Answer 1

Kinnear Plastics manufactures components for aircraft and marine industries. It buys plastic from two vendors - Tappan and Hill - based on price. Plastic is inspected and unsuitable plastic is discarded. Data shows Tappan had a lower discard rate of 2.5% versus Hill's 5%. Tappan and Hill bid $1,482 and $1,463 per ton respectively for an order of 150 tons. Calculating the effective cost per ton after discard rates, Tappan's cost is $1,520 per ton and Hill's is $1,540 per ton. Therefore, the purchasing manager should select Tappan as the supplier.

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192 views

Chapter 10 Assignment Answer 1

Kinnear Plastics manufactures components for aircraft and marine industries. It buys plastic from two vendors - Tappan and Hill - based on price. Plastic is inspected and unsuitable plastic is discarded. Data shows Tappan had a lower discard rate of 2.5% versus Hill's 5%. Tappan and Hill bid $1,482 and $1,463 per ton respectively for an order of 150 tons. Calculating the effective cost per ton after discard rates, Tappan's cost is $1,520 per ton and Hill's is $1,540 per ton. Therefore, the purchasing manager should select Tappan as the supplier.

Uploaded by

Tawan Vihokratana
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Score: 180.04/181 Points 99.47 %

[The following information applies to the questions displayed below.]


 
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) 4,400 8,200
Plastic discarded 110 410

The purchasing manager has just received bids on an order for 150 tons of plastic from both Tappan and
Hill. Tappan bid $1,482 and Hill bid $1,463 per ton.
 
2. Award: 6 out of 6.00 points  

Required:
1-a. Assume that the average quality, measured by the amounts discarded from the two companies,
will continue as in the past. What is the effective cost per ton for both Tappan and Hill? (Do not round
intermediate calculations.)

Tappan Hill
Effective cost per ton $ 1,520  $ 1,540 

1-b. Which supplier would you recommend that the purchasing manager select?

Tappan

References

Worksheet Learning Objective:


10-03 Describe how
the actions of
customers and
suppliers affect a
firm’s costs.

Difficulty: 2 Learning Objective:


Medium 10-04 Use activity-
based costing
methods to assess
customer and
supplier costs.

Required:
1-a. Assume that the average quality, measured by the amounts discarded from the two companies,
will continue as in the past. What is the effective cost per ton for both Tappan and Hill? (Do not
round intermediate calculations.)
Tappan Hill
Effective cost per ton $ 1,520 $ 1,540

1-b. Which supplier would you recommend that the purchasing manager select?

Tappan

 
Explanation:

The approach to this problem is to determine how much it costs to purchase a ton of “good” plastic.
The effective price is the quoted price divided by the percentage of good tons that can be expected:

Tappan Hill
Tons purchased 4,400 8,200
Tons discarded 110 410
Percentage of good product 2.5% 5.0%
Quoted price $1,482 $1,463
Effective cost per ton (a) $1,520 $1,540
(a) $1,520 = $1,482 ÷ (100% – 2.5%); $1,540 = $1,463 ÷ (100% – 5.0%)

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