The local Hospital purchasing manager was contacted by new supplier, who offered a quantity discount for disposable syringes. The order cost for the item is $80 per order and holding cost is 25 % of average inventory value on an annual basis. Annual demand is 40,000 boxes at a constant rate (no seasonality).
The Hospital currently pays $80 per box of for syringes. However, the new supplier offered a $4-per-box discount if the hospital would order a minimum of 2,000 boxes at a time.
- Should the hospital take advantage of this offer?
- Show a comparative analysis of all costs in the two alternatives; with discount and without discount); Show detail of your work.