Question

QUANTITY DISCOUNT ANALYSIS

Minnie Wong has received the following quote from a supplier of replacement ink cartridges used in laserjet printers:

Quantity         Unit Price

1                      $23

2                      19

5                      17

10                    13

13                    12

That same day Minnie received a quote for printing services for a purchasing procedure manual. The supplier has quoted a discount schedule using ranges instead of specific quantities.

Quantity         Unit
Range             Price

1–5                  $9.00  

6–10                8.85

11–20              8.75

21–30              8.00

31–40              7.60

41–50              7.30

51–99 7.00

Assignment Questions

1.         Using the format illustrated in the textbook, calculate a quantity discount analysis for a quote specifying quantity ranges.

2.         What do you conclude about this quotation? Does it appear reasonable based on your analysis? Why or why not?

3.         What should Minnie do with regards to this quote and supplier?

Answer 1

1.

		A	B	C	D	E	F	G
Number of units per order	0	1-5	6-10	11-20	21-30	31-40	41-50	51-99
Price per unit	$0	$9	$8.85	$8.75	$8	$7.60	$7.30	$7
Total price per order (using the minimum quantity)	$0	$9	$53.10	$96.25	$168	$235.60	$299.30	$357
Max. Units to order	0	5	10	19	29	39	68	-
Total price per maximum order	$0	$45	$88.50	$166.50	$232	$296.40	$350.40
Price difference between max. order		$45	$43.50	$77.75	$65.75	$64.40	$54	-
Quantity difference between maximum units to order		5	5	9	10	10	9	-
Price per unit per order quantity difference		$9	$8.70	$8.64	$6.58	$6.44	$6	-

2. The price unit difference per order is not reduced throughout the price break in the quotation. In the basis of an analysis, the quote is not rational as the gap from 11-20 to 21-30 unit break is different. The provider will explain the different findings to the purchaser. There's a big decrease in the price per unit by order quantity between $8.64 and $6.58.

3. Millie will ask the supplier to clarify the different consequences of the quote. She should also recommend that cumulative unit costs be reduced by the price split of 6-20 units.