Question

uppose Stanley's Office Supply purchases 50,000 boxes of pens every year. Ordering costs are $100 per order and carrying costs are $0.40 per box. Moreover, management has determined that the EOQ is 5,000 boxes. The vendor now offers a quantity discount of $0.20 per box if the company buys pens in order sizes of 10,000 boxes. Determine the before-tax benefit or loss of accepting the quantity discount. (Assume the carrying cost remains at $0.40 per box whether or not the discount is taken.)

Answer 1

Answer:

The company will save $10,500 every year.

Explanation:

Giving the following information:

Supply purchases 50,000 boxes of pens every year.

Ordering costs are $100 per order.

Carrying costs are $0.40 per box.

Management has determined that the EOQ is 5,000 boxes.

The vendor now offers a quantity discount of $0.20 per box if the company buys pens in order sizes of 10,000 boxes.

Cost per order 1= 5000*0.40 + 100= $2,100

Total cost= 2,100* 10= $21,000

Cost per order 2= 10000*0.40 + 100 - 10000*0.2= 2,100

Total cost= 2,100*5= $10,500

We don't have any information on the cost of having inventory. It is cheaper to make bigger orders and save money ordering costs and take advantage of the discount.