A bicycle producer buys brake cables from an overseas supplier. A shipment has been delayed at a port, leaving enough components for only three days of prod...
Question 1 Report
A bicycle producer buys brake cables from an overseas supplier. A shipment has been delayed at a port, leaving enough components for only three days of production. The production manager is considering an emergency order from a domestic supplier at a higher price. The sales manager has promised bicycles to retailers next week.
(a) When is the bicycle producer likely to stop production if no new brake cables arrive? [1]
(b) Explain one reason why the business may use a domestic supplier for an emergency order. [2]
(c) Which one of the following is an opportunity cost of choosing the domestic supplier: higher component cost, a new bicycle design, more retailer orders, or staff training? [1]
Answer Details
(a) If no new brake cables arrive, production is likely to stop after three days, when existing brake-cable stock runs out. [1]
(b) A domestic supplier may be able to deliver more quickly than the overseas supplier. [1] This allows bicycle production and retailer orders to continue, reducing the risk of lost sales. [1]
(c) The relevant opportunity cost is the higher component cost. Choosing the domestic emergency supply means accepting this extra cost in exchange for faster delivery. [1]
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