A small refrigeration shop stocks up on electric motors from a catalog supplier located in the Midwest. The price of the motors varies depending on the quantity purchased; the price breaks are shown in the table
The refrigeration shop knows it will need around 600 motors for the coming season and that it will cost them about $40 to place an order. Storage cost for the motors is $10 each. In previous years they have bought all 600 at once and they are considering doing this again. What order quantity would you advise and how much can they save using your recommendation instead of their one order per year strategy?
Quantity Price/unit
1-49 $35.00
50-99 $34.00
100-499 $33.00
500 or more $30.00
What will be an ideal response?
Answer:
Q* = = = 69.28 motors
This quantity isn't sufficient for the lowest cost, so costs at this volume and a price of $34 should be compared to the lowest quantity at the next break point, 100 motors for $33 each.
TCQ = 69 = + + DP = + + 600($34) = $21,092.83
TCQ = 100 = + + DP = + + 600($33) = $20,540.00
Buying in quantities of 100 motors results in a lower cost. Buying 600 motors at a time results in a total cost of:
TCQ = 600 = + + DP = + + 600($30) = $21,040.00
It will save the company $500 to purchase 100 motors per order instead of 600 per order.
You might also like to view...
Michael Porter's four generic strategies for achieving competitive advantage are product differentiation, price leadership, promotion power, and distribution efficiency
Indicate whether the statement is true or false
Josh Baker works for Jones Restaurant Supply all year and earns a monthly salary of $8,000. There is no overtime pay and Jones withholds income taxes at 12% of gross pay. Jones deducts $200 monthly for the co-payment of the health insurance premium. Employees are paid on the fifth day of each month. As of October, 31, Josh had $80,000 of cumulative earnings. Journalize the accrual of salaries expense on October 31. Omit explanations.
What will be an ideal response?
Who developed the International Classification of Nonprofit Organizations index?
A. World Bank B. Johns Hopkins C. Wise Giving Alliance D. Rockefeller Foundation
The international pricing strategy of any U.S. firm must take into account the taxes on imports and exports that foreign countries might place on its goods, otherwise known as ________.
Fill in the blank(s) with the appropriate word(s).