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CruBrew uses 100 bags of whole bean coffee every month. Currently, CruBrew has signed a year-long contract to purchase its coffee beans from a domestic supplier (DS), located in the USA. IT costs $20 per bag to purchase from DS and the fixed cost for every delivery, independent of the order size, is $120. Due to increased demand by the conscious students on campus and driven by increasing social vidion of the coffee shop, CruBrew is also considering the possibility of purchasing from a fair trade supplier (FS), a cooperative located in Ivory Coast, West Africa. The contract with FS requires exactly two shipments per year. The price of coffee beans from FS is $25 per bag, and transportation cost per shipment is estimated to be $2000. A group of students coducted a survey and found that all the customers are willing to pay at least 10 cents more for a cup of Fair Trade coffee. They also learned from CruBrew administration that a bag of coffee beans yield about 200 cups of coffee, that the demand for coffee is stable throughout the year, and the estimated cost for inspection and storage is $1 per bag per year and the annual cost of capital is approximately 20%. Should CruBrew go with DS or FS? Why? Show calculations please.

Accounting Basics, Accounting

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