Assignment:
Asbury Products offers the following discount schedule for its 4- by 8-foot sheets of good-quality plywood:
Home Sweet Home Company orders plywood from Asbury Products. Home Sweet Home has an ordering cost of $55. The carrying cost is 25%, and the annual demand is 1,000 sheets. What do you recommend?
34 Tropic Citrus Products produces orange juice, grapefruit juice, and other citrus-related items. Tropic obtains fruit concentrate from a cooperative in Orlando that consists of approximately 50 citrus growers. The cooperative will sell a minimum of 100 cans of fruit concentrate to citrus processors such as Tropic. The cost per can is $9.90.
Last year, a cooperative developed an incentive bonus program (IBP) to give an incentive to its large customers to buy in quantity. Here is how it works: If 200 cans of concentrate are purchased, 10 cans of free concentrate are included in the deal. In addition, the names of the companies purchasing the concentrate are added to a drawing for a new personal computer. The personal computer has a value of about $3,000, and currently about 1,000 companies are eligible for this drawing. At 300 cans of concentrate, the cooperative will give away 30 free cans and will also place the company name in the drawing for the personal computer. When the quantity goes up to 400 cans of concentrate, 40 cans of concentrate will be given away free with the order. In addition, the company is also placed in a drawing for the personal computer and a free trip for two. The value of the trip for two is approximately $5,000. About 800 companies are expected to qualify and to be in the running for this trip.
Tropic estimates that its annual demand for fruit concentrate is 1,000 cans. In addition, the ordering cost is estimated to be $10.00, and the carrying cost is estimated to be 10%, or about $1.00 per unit. The firm is intrigued with the IBP. If the company decides that it will keep the trip or the computer if they are won, what should it do?