Boze Sound Systems manufactures and sells sound systems for both home and auto. All parts of the sound systems, with the exception of the speakers, are produced in the Rochester, Ontario plant. Speakers used in the assembly of Boze's systems are purchased from Best Electronics of Concord, Ontario.

Mary Kim, purchasing agent for Boze Sound Systems, submits a purchase requisition for the speakers once every 4 weeks. The company's annual requirements total 5,000 units and the cost per unit is $60. (Boze does not purchase in greater quantities because Best Electronics, the supplier, does not offer quantity discounts.) Rarely does a shortage of speakers occur because Best promises delivery within 1 week following the receipt of a purchase requisition. The company produces 250 days of the year and the total time between date of order and date of receipt is 5 days.

Associated with the purchase of each shipment are procurement costs. These costs, which amount to $20 per order, include the costs of preparing the requisition, inspecting and storing the delivered goods, updating inventory records, and issuing a voucher and check for payment. In addition to procurement costs, Boze Sound Systems incurs inventory carrying costs, which include insurance, storage, handling, taxes, and the financial opportunity costs of having funds tied up in inventory. These costs equal 10% per unit per year (or $6 per year).

Beginning in August of this year, management of Boze Sound Systems will embark on a companywide cost control program in an attempt to improve its profits. One of the areas to be scrutinized closely for possible cost savings is inventory procurement.

1. If Best Electronics decides to provide a discount of 10% on orders of 200 or more speakers. Should Boze Sound Systems take advantage of the discount? How much would they save?