Zenn is a Australia automotive manufacturer that specializes in family sedans, trucks and SUV's. In 1992 Zenn started Zenn Canada, a wholly owned subsidiary of Zenn Australia. Since 1992, the Zenn brand has become very popular in Canada.
In 1992, when Zenn first started its operations in Canada, 100% of the manufacturing was in Australia. In 1998, Zenn opened a manufacturing facility in BC. The BC plant would be responsible for manufacturing all of its vehicles for the Canadian market. The majority of the parts are manufactured in-house or outsourced to a third party in Canada. In order to maintain control, Zenn Australia shipped all headlamps to the Canadian subsidiary. Zenn Australia has a very efficient inventory control system and has not normally been involved in the Canadian division in deciding how many headlamps would be shipped to Canada each month. Zenn Australia always ships enough headlamps to Canada every month to ensure that 50% of the next months projected demand is met. Note that each vehicle requires two headlamps. During 2012, Australia suffered from a very significant earthquake that caused severe damage across the country including the destruction of Zenn's manufacturing plant. On December 1, Zenn sent a memo to the Canadian subsidiary informing them that it would not be shipping any more headlamps to Canada for at least six months.
On December 2 Zenn Canada's Director of inventory Kieran Didcott called a special emergency meeting to deal with the headlamp issue. At the meeting were the manufacturing manager, Bob Tully, and you, the cost accountant. Kieran has asked that you review the sales forecasts (attached) and determine the monthly amounts of headlamps to purchase and the cash requirements to do so. As soon as the she received the memo Kieran phoned two potential suppliers for quotes (attached) and brought them to you for review.
Required
Kieran has asked you to state which of the suppliers' offers you would recommend and any other potential concerns you may have. Write a memo to Kieran and remember that Zenn Canada currently has a limited number of headlamps in inventory. Make sure you address both quantitative and qualitative concerns in making your recommendation.