How does the cost breakdown of the previous orders and Mr. Travis’ estimate differ?
What can be inferred about the nature of the new product from the cost breakdown estimation?
How can each item of a cost breakdown be interpreted in regard to each other and the quoted company?
Of all the cost breakdown items, which items are more important and open to negotiation?
What factors might have caused the variance between D & G Technologies’ quotation and Mr. Travis’ estimate? Between D & G Technologies’ quotation
and Bell Systems’ quotation? Between SOT and the two lowest quotes?
In light of your answer to the above question, what conclusions can you draw concerning
(a) the reliability and usefulness of cost estimates made by the buyer, and
(b) the value to be gained from the comparison of one supplier’s quotation with the others?
Solution Preview
How does the cost breakdown of the previous orders and Mr. Travis’ estimate differ? What can be inferred about the nature of the new product from the cost breakdown estimation?
From the previous analysis, it is seen that the cost of each unit of the products is $27.88 for the 8000 units. After the analysis the Mr. Travis found that the cost is higher, the cost was $28.26. This is because there has been change for cost to $7.30. These include the cost of raw material that issued in the manufacture of the products and are directly identified with the product. The items that are identified as the direct materials are listed in bill of materials. Direct labor cost is also increased in and is found to be $5.09. One can infer that the product is that the buyers are ready and in need of having it and most of the firms do not have the understanding of the firm.
How can each item of a cost breakdown be interpreted in regard to each other and the quoted company?
The direct cost for Mr. Travis value to direct materials to cost a higher as compared to that of the other companies, the direct, and material for Bell Systems is $6.20 while that of D & G Technologies is $5.90. Direct labor is also higher for Mr. Travis with that of Bell Systems being $4.25 while that of D & G Technologies is $4.00. The cost of tooling however is lower for Mr. Travis as compared to that of the two companies. The cost of tooling for Mr. Travis is valued at $2.00 while that of Bell Systems is $3.22 while that of D & G Technologies is $2.20….
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