Answer:
Wang should take the quantity discount
Explanation:
Total minimum cost for both cases i.e. with and without discount is evaluated.
1. Without the discount
Demand - 1,400 units
Ordering cost - $25 per order
Cost of detector- $400
Carrying cost - 20%
Applying EOQ formula: √ (2*1,400*25)/(400*20%) = 29.580
Total cost = (400*1400) + (1400*25*2/29.580) = 562,366
2. With discount
Demand - 1,400 units
Ordering cost - $25 per order
Cost of detector i.e. 400 x 20%- $380
Carrying cost - 20%
Applying EOQ formula: √ (2*1,400*25)/(380*20%) = 30.3488
Applying variables to obtain total cost as in 1 above = 543,516.67
Therefore, since total cost is lower after the discount, Wang should take the quantity discount.