Whole Nature Foods sells a gluten-free product for which the annual demand is 5000 boxes. At the moment it is paying $6.40 for each box; carrying cost is 25% of the unit cost; ordering costs are $25. A new supplier has offered to sell the same item for $6.00 if Whole Nature Foods buys at least 3000 boxes per order. Determine the total costs under both scenarios. Should Whole Nature Foods stick with the old supplier, or take advantage of the new quantity discount.

The firm should take the advantage of the new quantity as the total cost is lesser as compared with the old supplier. the firm can save $340 by approximately taking the advantage of the new quantity discount.

Explanation:

Solution

Given that:

The Annual demand D = 5000 boxes

The Cost C = $6.4 per each box

The Carrying cost H = 25% of the unit cost = 0.25*6.4 = 1.6

The ordering costs S = $25.00

Now,

EOQ =√2DS/H

EOQ =√(2*5000 * 25)/1.6

Thus,

EOQ =Q = 395.28

The Total cost = DC + (Q/2)H + (D/Q)S

= 5000*6.4 + (395.28 /2) 1.6 + (5000/395.28)25

Then,

T = 32000 + 316.23 + 316.23

= 32632.46

So,

The new supplier has offered to sell the same item for the amount of $6.00 if Q = 3,000 boxes

Hence,

The total cost = 5000 * 6 + (3000/2)1.5 + (5000/3000)25

= 30000 + 2250 + 41.67

= 32291.67

Therefore, The firm should take the advantage of the new quantity as the total cost is lesser as compared with the old supplier. the firm can save $340 by approximately taking the advantage of the new quantity discount.

swatiupadhyay714 swatiupadhyay714 · Answer 2 · 2021-12-11T12:17:55+01:00

The Total Cost is the real cost of producing a certain level of output. To put it differently, the overall price is the sum of all expenditure (costs) invested on materials, both conscious and unconscious, to obtain a particular level of output.

The correct answer is = 32291.67.

The Annual demand D = 5000 boxes

The Cost C = $6.4 per each box

The Carrying cost H = 25% of the unit cost = [tex]0.25\times6.4 = 1.6[/tex]

The ordering costs S = $25.00

Now,

EOQ =[tex]\frac{\sqrt{2DS} }{H}[/tex]

EOQ =[tex]\frac{\sqrt{2\times5000\times25}}{1.6}[/tex]

Thus, EOQ =Q = 395.28

The Total cost = DC + (Q/2)H + (D/Q)S = [tex]5000\times6.4[/tex] + ([tex]\frac{395.28}{2} \times1.6[/tex]) + [tex]\frac{5000}{395.28} \times25[/tex]

Then, T = 32000 + 316.23 + 316.23 = 32632.46

So, The new supplier has offered to sell the same item for the amount of $6.00 if Q = 3,000 boxes

Hence, The total cost = [tex]5000\times6.4[/tex] + [tex]\frac{3000}{2} \times1.5[/tex] + [tex]\frac{5000}{3000} \times25[/tex]

= 30000 + 2250 + 41.67

= 32291.67

The business should benefit from the new amount because the total cost is lower than with the previous provider. By approximately taking advantage of the new quantity discount, the company may save $340.

To know more about the total cost, refer to the link below:

https://brainly.com/question/16395657