Edwards Manufacturing Company purchases two component parts from three different suppliers. The suppliers have limited capacity, and no one supplier can meet all the company’s needs. In addition, the suppliers charge different prices for the components. Component price data (in price per unit) are as follows: Supplier Component 1 2 3 1 $10 $14 $10 2 $16 $12 $10 Each supplier has a limited capacity in terms of the total number of components it can supply. However, as long as Edwards provides sufficient advance orders, each supplier can devote its capacity to component 1, component 2, or any combination of the two components, if the total number of units ordered is within its capacity. Supplier capacities are as follows.

Supplier 1 2 3

Capacity 600 1000 800

If the Edwards production plan for the next period includes 1000 units of component 1 and

1. COMPONENT 1 recommendation is that both supplier 1 and supplier 2 should be recommended for the purchase of component 1 reason been they both supply the component at the lowest cost.

COMPONENT 2 recommendation is that both supplier 2 and 3 should be recommended for the supply of component 2

Component 1

Supplier 1 and 2 6,000 5,600

Component 2

Supplier 2 and 3 7,200 2,000

2. Total cost $19,600

Explanation:

Calculation of how many units of each component that should be ordered

Calculation for COMPONENT 1

Based on the information Supplier 1 made supplies of component 1 at the rate of $10

Since purchase was 600 units of component 1 at the rate of $ 10

Hence,

600×$10

=6,000

This means that remaining unit of 400 calculated as (1,000-600) of component 1 should have to be purchased by supplier 2

Hence,

400×$14

=5,600

Based on the above calculation both supplier 1 and supplier 2 should be recommended for the purchase of component 1 reason been they both supply the component at the lowest cost.

Calculation For COMPONENT 2

Supplier 2 supplies the component 2 at the rate of $12

Hence,

600×$12

=7,200

The remaining unit of 200 calculated as (800-600) of component 2 should be bought by supplier 3

200×$10

=2,000

Therefore both supplier 2 and 3 should be recommended for the supply of component 2

2. Calculation of Total purchase cost

Supplier 1 Supplier 2 Supplier 3 Total

Component 1 $ 6,000 $ 5,600 $0 $ 11,600

Component 2 $0 $ 6,000 $ 2,000 $ 8,000

Total $ 19,600

($11,600+$2,000)

Therefore the total purchase cost for both the components is $ 19,600