The Q Milk Co. is a distribution company located in Madrid, that produces and distributes dairy products and beverages in Spain. They have recently grown and now also distribute product in other European and Latin America countries.
The company started 40 years ago and was the first to introduce a revolutionary packaging (TetraPak) made of plastic, aluminum and cardboard that increases the shelf life of milk and juice. One of their most important suppliers, the Global Packaging Co., supplies the FourPak5.0 package.
The Q Milk Co. has a long-term and a very stable relationship with the Global Packaging Co. Indeed, the demand of FourPak5.0 is very steady at 7,500 units per month.
The Q Milk Co. has an annual holding cost of 25 percent (based on an annual interest rate). Purchasing a FourPak5.0 package costs Q Milk Co. $0.3 per unit, and they sell on an average price for $1.2 per unit. It costs the Q Milk Co. $200 to place an order, and the Global Packaging Co. recently imposed their customers to order in multiples of 100. For this problem assume there are 364 days per year.
Question
The Global Packaging Co. offers the Q Milk Co. a quantity discount. If the Q Milk Co. orders a full container (30,000 units) per shipment they will reduce the purchase cost of each FourPak5.0 by 1% (all unit discounts).
If you were to take this discount, how much would you order and what would your expected Total Annual Cost be?
What would your order quantity be if you take this discount?