A manager just received a new price list from a supplier. It will now cost $1.00 a box for orderquantities of 801 or more boxes, $1.10 a box for 200 to 800 boxes, and $1.20 a box for smallerquantities. Ordering cost is $80 per order and carrying costs are $10 per box a year. The firm uses3,600 boxes a year. The manager has suggested a “round number” order size of 800 boxes. Themanager’s rationale is that with a U-shaped cost curve that is fairly flat at its minimum, the difference in total annual cost between 800 and 801 units would be small anyway. How would you replyto the manager’s suggestion? What order size would you recommend?
A manager just received a new price list from a supplier. It will now cost $1.00 a box for orderquantities of 801 or more boxes, $1.10 a box for 200 to 800 boxes, and $1.20 a box for smallerquantities. Ordering cost is $80 per order and carrying costs are $10 per box a year. The firm uses3,600 boxes a year. The manager has suggested a “round number” order size of 800 boxes. Themanager’s rationale is that with a U-shaped cost curve that is fairly flat at its minimum, the difference in total annual cost between 800 and 801 units would be small anyway. How would you replyto the manager’s suggestion? What order size would you recommend?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A manager just received a new price list from a supplier. It will now cost $1.00 a box for order
quantities of 801 or more boxes, $1.10 a box for 200 to 800 boxes, and $1.20 a box for smaller
quantities. Ordering cost is $80 per order and carrying costs are $10 per box a year. The firm uses
3,600 boxes a year. The manager has suggested a “round number” order size of 800 boxes. The
manager’s rationale is that with a U-shaped cost curve that is fairly flat at its minimum, the difference in total annual cost between 800 and 801 units would be small anyway. How would you reply
to the manager’s suggestion? What order size would you recommend?
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