The toilet manufacturer has proposed a quantity discount schedule for toilets as reflected in the following table for consideration by the president of the wholesale distributor as a means to potentially reduce his total annual costs.
|
Discount Number
|
Quantity Ordered
|
Unit Cost Discount
|
|
1
|
0 to 1,000
|
0%
|
|
2
|
1,001 to 2,000
|
10%
|
|
3
|
2,001 and over
|
15%
|
The estimated annual demand for the toilets, estimated average demand per day, purchase cost from the toilet manufacturer per unit, lead time for a new order, ordering cost per order and average holding cost per unit per year remain the same as stated in the scenario for the current ordering model. Answer questions 19 and 20 based upon using the quantity discount model.
1. What order quantity will allow the wholesale distributor to minimize their total annual inventory costs (Purchase Cost + Ordering Cost + Holding Cost) by taking advantage of the proposed discount pricing?
o 250
o 751
o 2,001
o 662
2. What is the total annual cost (Purchase Cost + Ordering Cost + Holding Cost) based upon taking advantage of the proposed discount pricing?
o $626,128.89
o $601,698.43
o $584,118.43
o $487,998.00