The Singapore Stores imports dried milk from the UK, which it markets under its own brand name Klim.

Sales of the product show neglible seasonal variation, and run at 12 million packets per annum. To ensure that there are no stock outs the company always holds a base stock equal to 1 month's sales.

The company's purchasing officer orders in amounts equal to 1 month's sales paying S $1.0 per packet. The lead time between placing an order and delivery of the consignment to the Singapore Stores' warehouse is 37 days.

The supplying exporter has offered to reduce the price of Klim by 1 0 per cent a packet if the Singapore Stores will treble the size of the orders that it places; however, it will also have to be prepared to accept twice the current lead time.

The purchasing officer discusses this with the company's management accountant. It is decided that if the change is made, the same base stock as before could be held, but the occupancy costs of the additional storage space associated with the increased stockholdings would cost S $72000 per annum, and that there would also be an increase in handling costs of 8c per packet sold.

The management accountant also requires an opportunity cost to be imputed for the company's percentage as currently used.

REQUIRED

(a) Your opinion as to whether the exporter's offer should be accepted, based upon computations

(b) Your views on any qualitative information which should be brought into the decision analysis