Suppose the Campus Bookstore purchases 50,000 boxes of writing tablets every year.Ordering costs are $100 per order and carrying costs are $0.40 per box.Moreover,management has determined that the EOQ is 5,000 boxes.The vendor now offers a quantity discount of $0.20 per box if the company buys tablets in order sizes of 10,000 boxes.Determine the before-tax benefit or loss of accepting the quantity discount.(Assume the carrying cost remains at $0.40 per box whether or not the discount is taken.)
A)$1,000 loss
B)$1,000 benefit
C)$ 500 loss
D)$ 500 benefit

Question

Suppose the Campus Bookstore purchases 50,000 boxes of writing tablets every year.Ordering costs are $100 per order and carrying costs are $0.40 per box.Moreover,management has determined that the EOQ is 5,000 boxes.The vendor now offers a quantity discount of $0.20 per box if the company buys tablets in order sizes of 10,000 boxes.Determine the before-tax benefit or loss of accepting the quantity discount.(Assume the carrying cost remains at $0.40 per box whether or not the discount is taken.)​
A)​$1,000 loss
B)​$1,000 benefit
C)​$ 500 loss
D)​$ 500 benefit

Quizplus · Accepted Answer

Before taking the discount, the Campus Bookstore would order 10 orders of 5,000 boxes each, resulting in a total cost of:
(10 orders) * ($100 per order) + (50,000 boxes) * ($0.40 carrying cost per box) = $1,000 + $20,000 = $21,000.

If they take the discount and order 5 orders of 10,000 boxes each, the total cost would be:
(5 orders) * ($100 per order) + (50,000 boxes) * ($0.40 carrying cost per box) + (50,000 boxes) * ($0.20 discount per box) = $500 + $20,000 + $10,000 = $30,500.

Therefore, the benefit of taking the discount would be:
$21,000 - $30,500 = -$9,500, which is a loss of $500. So, the best choice is D.

Suppose the Campus Bookstore Purchases 50,000 Boxes of Writing Tablets