Davis Fabricators buys metal for manufacturing from two suppliers, Alpha Metals and First Parts. If the metal is delivered late, the shipment to the customer is delayed. Delayed shipments lead to contractual penalties that call for Davis to reimburse a portion of the purchase price to the customer. During the past quarter, the purchasing and delivery data for the two suppliers showed the following: The Accounting Department recorded $22,400 as the cost of late deliveries to customers. What percentage of late deliveries by Alpha would make Davis indifferent between buying from Alpha Metals and First Parts? Solution First compute the cost of a late delivery: Number of tons delivered late =(10,000 x 25% + 6,000 x 5%) =2,800 Cost of late deliveries ....................... (Given)= $22,400 Cost of late delivery per ton ............. ($22,400 .

1. Davis Fabricators buys metal for manufacturing from two suppliers, Alpha Metals and First
Parts. If the metal is delivered late, the shipment to the customer is delayed. Delayed shipments
lead to contractual penalties that call for Davis to reimburse a portion of the purchase price to the
customer.
During the past quarter, the purchasing and delivery data for the two suppliers showed the
following:
The Accounting Department recorded $22,400 as the cost of late deliveries to customers.
What percentage of late deliveries by Alpha would make Davis indifferent between buying from
Alpha Metals and First Parts?
Davis Fabricators buys metal for manufacturing from two suppliers, Alpha Metals and First
Parts. If the metal is delivered late, the shipment to the customer is delayed. Delayed shipments
lead to contractual penalties that call for Davis to reimburse a portion of the purchase price to the
customer.
Solution
First compute the cost of a late delivery:
Number of tons delivered late
=(10,000 x 25% + 6,000 x 5%) =2,800
Cost of late deliveries ....................... (Given)= $22,400
Cost of late delivery per ton ............. ($22,400