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Chapter 2 - Total Cost of Ownership example solution

# Chapter 2 - Total Cost of Ownership example solution - =...

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9/21/11 11 TCO – Total Cost of Ownership Supplier 1 is lower total cost even though unit price was slightly higher than Supplier 2. Description Supplier 1 Total Engine Cost 12,000 units * \$500 /unit = \$6,000,000 Tooling Cost = \$22,000 Transportation Cost (22,000 Lb = LTL) 125 miles * 12,000 units *22 lb/unit *\$1.20/2000 lb mile = \$19,800 Ordering Cost [12,000 units/(1000 units/order)] *\$125/order = \$1,500 Carrying Cost (1000 units)/2) *\$500/unit * 20% = \$50,000 Quality Cost \$6,000,000 * 2%
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Unformatted text preview: = \$120,000 TOTAL = \$6,213,300 Description Supplier 2 Total Engine Cost 12,000 units * \$498 /unit = \$5,976,000 Tooling Cost = \$20,000 Transportation Cost (22,000 Lb = LTL) 100 miles * 12,000 units *22 lb/unit *\$1.20/2000 lb mile = \$15,840 Ordering Cost [12,000 units/(1000 units/order)] *\$125/order = \$1,500 Carrying Cost (1000 units)/2) *\$498/unit * 20% = \$49,800 Quality Cost \$5,976,000 * 3% = \$179,280 TOTAL = \$6,242,420 Slides used in class...
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