Northcutt manufactures high-end racing bikes and is looking for a source of gear sprocket sets. Northcutt would need 1,550 sets a month. Supplier A is a domestic firm, and Suppliers B and C are located overseas. Cost information for the suppliers is as follows: Supplier A—Price of $100 per set, plus packing cost of $2 per set. Total inland freight costs for all 1,550 units would be $800 per month. Supplier B—Price of $96 per set, plus packing cost of $3.50 per set. International transportation costs would total $3,500 per month, while total inland freight costs would be $800 per month. Supplier C—Price of $93 per set, plus packing cost of $3.00 per set. International transportation costs would total $5,000 per month, while total inland freight costs would be $1,000 per month.
a. (**) Calculate total landed costs per unit and per month for the three potential suppliers. Who is the cheapest? Who is the most expensive? b. (***) Suppose that international and inland freight costs are fixed for volumes up to 4,000 units a month. Under this assumption, which supplier would have the lowest landed cost if demand were cut in half? If demand doubled? Whose landed cost is most sensitive to volume changes? c. (**) What factors other than landed costs might Northcutt consider when selecting the supplier? (Hint: Incorporate what you learned in Chapters 5 and 7.
