Penalty Cost Calculation
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The U.S. Army Corps of Engineers issues purchase instructions informing potential suppliers that roadway graders will be evaluated using the following life cycle cost model:
LCC = unit operating cost, dollars
= (unit price + logistic cost) / service life
The instructions require that the selected equipment supplier demonstrates service life in a post- award reliability acceptance test. If the reliability test does not meet the level guaranteed by the contract, then a penalty function deducts from the unit price as
Penalty cost = (1- test value MTBF/quoted MTBF) * (unit price + logistic cost), where MTBF = mean time between failures, service life, hours
Logistic cost = value supplied by U.S. Army Corps of Engineers, dollars
The following bids are received:
Supplier Unit Price MTBF, Hr
A $30,000 1000
B 35,000 1200
C 60,000 1635
The buyer determines that the logistic cost is $25,000 and supplies this information to qualified suppliers. Find the winning supplier for the road equipment. Now suppose that the supplier fails to meet the quoted MTBF by 10%. What is the penalty cost and the final price for the roadway grader?
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Word document shows the steps to calculate the penalty cost for a given set of data.
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The U.S. Army Corps of Engineers issues purchase instructions informing potential suppliers that roadway graders will be evaluated using the following life cycle cost model:
LCC = unit operating cost, dollars
= (unit price + logistic cost) / service life
The instructions require that the selected equipment supplier demonstrates service life in a post- award reliability acceptance test. If ...
Purchase this Solution
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