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.)

Question

Business

Shayna Wang

11 September, 16:30

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.)

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Yesenia George · Answer 1

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.