Question

Each year, Florida's Best Salad Dressing, Inc. (FBSD) purchases 50,000 gallons of extra virgin olive oil. Ordering costs are $95.00 per order, and the carrying cost, as a percentage of inventory value is 80 percent. The purchase price to FBSD is $0.50 per gallon. FBSD’s management currently orders the EOQ each time an order is placed. No safety stock is carried. The supplier is now offering a quantity discount of $0.03 per gallon if FBSD orders 10,000 gallons at a time. What is the net benefit in dollars if FBSD takes the discount? Enter your answer rounded to two decimal places. Do not enter $ or comma in the answer box. For example, if your answer is $12,300.456 then enter as 12300.46 in the answer box.

Answer 1

Solution:-

First we need to Calculate EOQ-

EOQ =

EOQ =

EOQ = 4,873.40

If Order less than 10,000 at a time-

Total Cost =

Total Cost =

Total Cost = $2,974.68

If Order 10,000 at a time-

Total Cost =

Total Cost =

Total Cost = $2,355

Therefore Cost increase by $2,974.68 - $2,355 = $619.68

Benefit is 50,000 * 0.03 = $1,500.

Benefit exceeds the cost by = $1,500 - $619.68 = $880.32

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