Figure 7-3

Multiple Choice

Figure 7-3.Hamilton Company manufactures engines. Hamilton produces all the parts necessary for its engines except for one electronic component, which is purchased from two local suppliers: Traynor Inc. and Bello Company. Both suppliers are reliable and rarely deliver late; however, Traynor sells the component for $10.00 per unit and Bello sells the same component for $8.95. Hamilton purchases 70% of its components from Bello, because of the lower price. The total annual demand is 75,000 units.
-Refer to Figure 7-3. Suppose that Hamilton loses $2,500,000 in sales per year because of its reputation for defective units attributable to failed components. Using warranty hours, assign the proportional cost of lost sales to Traynor Inc. Then determine what effect this would have on the cost per component.

A) $4.00 per unit
B) $25.00 per unit
C) $8.95 per unit
D) $8.15 per unit