Bjb Manufactures High-End Bikes And Is Looking For A Source

1 Bjb Manufactures High End Bikes And Is Looking For A Source For Ped

BJB manufactures high-end bikes and is seeking a source for pedal sets. The company requires 1,625 sets per month. There are three potential suppliers: Supplier A, a domestic firm, and Suppliers B and C, which are located overseas. Cost information includes the price per set, packing costs per set, total inland freight, and total international transportation costs.

Supplier A offers a price of $101 per set with a packing cost of $2 per set. The inland freight cost for Supplier A is fixed at $950, and the international transportation costs amount to $3,750. Supplier B provides a slightly lower price of $95 per set, with packing costs of $3.25 per set, and the inland freight is also fixed at $950, with international transportation costs of $6,000. Supplier C has the lowest price at $93 per set, packing costs of $4 per set, inland freight of $1,100, and international transportation costs amounting to $6,000.

Given that the inland and international freight costs are fixed up to a volume of 3,500 sets per month, this analysis focuses on determining the lowest landed cost under demand scenarios of half and double the current requirement.

Analysis of Landed Costs Under Different Demand Scenarios

To evaluate which supplier offers the lowest landed cost when demand is cut in half (approximately 812.5 sets) and doubled (around 3,250 sets), we must compute the total landed costs under these demand volumes. Since fixed costs are independent of order volume up to 3,500 sets, the primary costs influencing total costs are the per-unit costs and variable packing costs. The fixed freight and international transportation costs are amortized over the production scale provided demand does not exceed 3,500 sets.

Calculating Costs for Reduced Demand (Half of 1,625 sets)

At approximately 812.5 sets, the fixed costs (ma freight and international shipping) remain constant. The focus then shifts to unit costs and packing. For simplicity, costs per set are computed as follows:

• Supplier A: (Price $101 + Packing $2) = $103 per set
• Supplier B: ($95 + $3.25) = $98.25 per set
• Supplier C: ($93 + $4) = $97 per set

Because fixed costs are distributed over a smaller volume, the total costs are slightly reduced per unit, but fixed costs still represent a significant component. Total imported and inland costs remain stable, making Supplier B slightly more competitive due to the lower per-unit cost, especially as demand decreases.

Calculating Costs for Increased Demand (Double of 1,625 sets)

At 3,250 sets, still below the 3,500-volume threshold, the fixed international and inland freight costs are fully allocated across the higher volume, reducing per-unit fixed costs. The relative costs per supplier remain proportional, with Supplier C maintaining the lowest unit price, followed by Supplier B and A. The total landed costs therefore favor Supplier C due to its lower per-unit price, despite higher packing costs.

Implication of Fixed Costs and Volume

Given the fixed costs are constant up to 3,500 sets, the lower per-unit price supplier (Supplier C) will be the most cost-effective at both demand levels considered—half or double the current demand—assuming demand remains within the volume threshold. The attractiveness of Supplier B diminishes slightly at higher quantities due to higher total international transportation costs, but it remains competitive at lower demand levels due to its moderate per-set price.

Conclusion

In conclusion, under the assumption that fixed freight and international transportation costs are fixed up to 3,500 sets per month, Supplier C offers the lowest landed cost both when demand is halved and doubled within these volume constraints. The marginal difference in per-unit costs, compounded with fixed transportation costs, makes Supplier C the most economical choice up to the specified volume threshold.

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