A growing online business, Pawsome Pantry, sells dried dog food in reusable metal tubs. Its operations manager expects demand to rise sharply after a social...

(a)
\[12\,000\times\$1.80=\$21\,600\]
The purchase cost from the local manufacturer is \$21 600. [2]

(b) The overseas manufacturer produces a larger quantity, so it may gain economies of scale. [1] For example, fixed production costs can be spread over more tubs or materials can be bought in bulk. [1]

(c) Weekly replenishment means Pawsome Pantry can order tubs closer to when they are needed. [1] This reduces the quantity held in its limited storage space. [1] It also releases cash for other activities and lowers the risk of holding unsold tubs. [1]

(d) The local manufacturer is the stronger choice on the information given. The overseas order is 30 000 tubs, which is difficult to store when the business has limited space. [1] Weekly deliveries reduce stockholding and cash-flow pressure. [1] The local supplier does not require advance payment, reducing financial risk. [1] Weekly replenishment also lets the business respond if demand after the campaign changes. [1] Although the overseas price is lower, its eight-week lead time and advance payment increase risk. Therefore, the local supplier better meets the stated needs for flexibility, storage control and avoiding cash tied up in stock. [1]

A conclusion in favour of the overseas manufacturer could also be credited if it is supported by the lower unit price and expected strong demand, while recognising the eight-week lead time, advance payment and storage implications. [5]