Question

Your company is contemplating bidding on an RFP (Request For Proposal) to produce 100,000 units of a specialized part. Suppose, however, that the requesting company really needs only 90,000 units of the part. Also assume that, because the part is specialized, potential suppliers do not yet possess the machines and factories needed to produce it and that overhead expenses involved in production have yet to be incurred. Suppose the average costs of all potential suppliers are as follows: Units Average Total Cost (Dollars Per Unit) 90,000 4 100,000 3 True or False: The requesting company can solicit lower bids by requesting 100,000 units as opposed to 90,000. True False

Answer 1

Answer:

True

Explanation:

The computation is shown below:

At 90,000 units

The total cost is

= 90,000 units × $4

= 360,000 units

At 100,000 units

The total cost is

= 100,000 units × $3

= $300,000

So as we can see that there is a difference of $60,000 after deducting the total cost at 90,000 units from total cost at 100,000 units

Therefore, in 100,000 units the company could save $60,000

Hence, the given statement is true

Answer 2

Answer: True

Explanation:

Average costs of all potential suppliers:

Units = 90,000 at average total cost = $4 per unit

So,

Total cost = No. of units × Average total cost per unit

                = 90,000 × $4

                = $360,000

Units = 100,000 at average total cost = $3 per unit

So,

Total cost = No. of units × Average total cost per unit

                = 100,000 × $3

                = $300,000

Hence, the company will save 60,000 dollar if it orders 100,000 units.