Reference no: EM132775792

The Donnie Corporation and the Thea Corporation manufacture fairly similar remote-controlled toy cars. The Tristan Corporation, a retailer of children's toys, expects to buy and sell 4,000 of these cars each year. Both Donnie and Thea can supply all of Tristan's needs, and Tristan prefers to use only on supplier for these cars. An electronic hookup will make ordering costs negligible for either supplier. Tristan wants 80 cars delivered 50 times each year. Tristan obtains the following additional information.

• Purchase price of the car Donnie Thea P50 P49 Relevant incremental carrying costs of insurance, materials handling, breakage, etc., per car per year P11 P10 Expected number of stockouts per year resulting from late deliveries 20 cars 50 cars Stockout costs per car P25 P26 Expected number of cars sold that will be returned owing to quality and other problems 40 cars 140 cars Additional to Tristan of handling each returned car P21 P21 Inspection costs per delivery P20 P28 Tristan requires a rate of return of 15% per year on investments in inventory.

Required:

Problem 1. Which supplier should Tristan choose? Show all calculations.

Problem 2. What other factors should Tristan consider before choosing a supplier?