Explain the advantage of the proposed discount pricing

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Reference no: EM131976061

Question: Task 1. A wholesale distributor stocks and sells low flow toilets to contractors for use in commercial office buildings. The estimated annual demand for the toilets is 5,475 units. The estimated average demand per day is 18 units. The purchase cost from the toilet manufacturer is $135.00 per unit. The lead-time for a new order is 5 days. The ordering cost is $90.00 per order. The average holding cost per unit per year is $4.05. The distributor has traditionally ordered 210 units each time they placed an order. Based upon using the distributor's current ordering model:

Task 4. 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	12.5%
3	2,001 and over	17.5%

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. Based upon using the quantity discount model:

1. What order quantity will allow the wholesale distributor to minimize total annual inventory costs (Purchase Cost + Ordering Cost + Holding Cost) by taking advantage of the proposed discount pricing?

2. What is the total annual cost (Purchase Cost + Ordering Cost + Holding Cost) based upon taking advantage of the proposed discount pricing?

Reference no: EM131976061

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