Sportsworld, Inc. currently incurs $100,000 in annual purchasing costs, and each purchase order costs the firm approximately $3. Third-Party Logistics, Inc. is willing to perform purchasing services for Sportsworld at a $50,000 annual fixed retainer plus $7 per purchase order. Sportsworld currently places 10,000 orders per year.
a) What is the current total cost of purchasing for Sportsworld?
b) What would the cost of purchasing be if Third-Party Logistics were used?
c) What is the indifference point for the two alternatives?

Question

Quizplus · Accepted Answer

The Answer of Sportsworld, Inc. currently incurs $100,000 in annual purchasing costs, and each purchase order costs the firm approximately $3. Third-Party Logistics, Inc. is willing to perform purchasing services for Sportsworld at a $50,000 annual fixed retainer plus $7 per purchase order. Sportsworld currently places 10,000 orders per year.
a) What is the current total cost of purchasing for Sportsworld?
b) What would the cost of purchasing be if Third-Party Logistics were used?
c) What is the indifference point for the two alternatives?