Question: 1. Suppose the Always Fresh Grocery Store is offered a discount by its supplier if more than 50 cases of tea are ordered at one time. The unit item costs are $80 per case for 0 to 49 cases and $76 per case for 50 cases or more. This price of $76 applies to the entire order.
a. Should the grocery store take the discount offer?
b. What discount is required for the store to be indifferent between taking the discount and ordering the EOQ?
2. A supplier has come to you and offered the following deal. If you buy 29 or fewer cases of cleaning solution, the cost will be $25 for each case. If you buy 30 or more cases, the cost will be $20 per case. Assume your cost of carrying inventory is 15 percent a year, it costs $20 for you to order the material, and you use 50 cases per year.
a. How many cases should you order?
b. Would you negotiate with this supplier for a further discount? Explain the quantities and prices that you would negotiate for and why those quantities and prices are selected.