Question

UBox sells packaging cartons to medium size businesses. The heavy duty 1.5 cubic yard carton sells for $2.68 each. UBox has collected data and found out the typical business customer uses 25,000 of these boxes per year and places an order about 9 times per year.

The cartons are packaged in the warehouse in bundles of 5,000. Therefore, UBox would like to incentivize its customers to order a minimum of 5,000 boxes per order. What quantity discount do they have to offer to make this minimum order size attractive to the typical customer? Give the answer in dollars, i.e. 10 cents would be 0.10.

Answer 1

To make the minimum order size of 5,000 boxes attractive, UBox needs to offer a quantity discount that would make it financially beneficial for the customer to order this quantity.

Step-by-step explanation:

In order to make the minimum order size of 5,000 boxes attractive to the typical customer, UBox needs to offer a quantity discount that would make it financially beneficial for the customer to order this quantity. Let's calculate the total cost of 25,000 boxes without any discount. The price of each box is $2.68, so the total cost before the discount would be 25,000 x $2.68 = $67,000.

If we assume that the customer places 9 orders per year, and each order contains 5,000 boxes, then the total cost of the orders would be $67,000 x 9 = $603,000.

In order to incentivize the customer to order a minimum of 5,000 boxes per order, UBox could offer a discount that would make the total cost of each order with 5,000 boxes equal to or lower than the total cost of $603,000. This would depend on the specific discount amount that UBox is willing to offer.