Question

A supplier has offered your company a reduced price per unit for a component part you purchase if you will increase your purchase quantity from to units.​ Currently, you pay ​$ per unit. The supplier has offered to reduce this cost to ​$ per unit if you purchase the higher quantity. You purchase approximately of the units annually. The cost to place an order is estimated to be ​$ per order regardless of the order size. Transportation costs are estimated to be ​$ per unit. Your cost to hold a component part in inventory is estimated at ​% annually based on the cost of the purchased item. Should you continue with your current​ policy, or should you take the incentive offered by the​ supplier?

Answer 1

the numbers are missing:

A supplier has offered your company a reduced price per unit for a component part you purchase if you will increase your purchase quantity from 18,000 to 72,000 units.​ Currently, you pay ​$28.50 per unit. The supplier has offered to reduce this cost to ​$28.20 per unit if you purchase the higher quantity. You purchase approximately 279,000 of the units annually. The cost to place an order is estimated to be ​$360 per order regardless of the order size. Transportation costs are estimated to be ​$0.85 per unit. Your cost to hold a component part in inventory is estimated at 18​% annually based on the cost of the purchased item. Should you continue with your current​ policy, or should you take the incentive offered by the​ supplier?

currently the total cost = [279,000/18,000 x $360] + (18% x $28.50 x 18,000/2) + (279,000 x $0.85) + ($28.50 x 279,000) = $5,580 + $46,170 + $237,150 + $7,951,500 = $8,240,400

total cost after proposed change in order size = [279,000/72,000 x $360] + (18% x $28.20 x 72,000/2) + (279,000 x $0.85) + ($28.20 x 279,000) = $1,395 + $182,736 + $237,150 + $7,867,800 = $8,289,081

the proposed change in order size should not be accepted and the company should continue with its current policies