Question
Dream Resorts buys custom-made boxes in bulk and uses them to pack its wine, which it bottles and sells in its on-location Restaurant/Wine Shop. The
Dream Resorts buys custom-made boxes in bulk and uses them to pack its wine, which it bottles and sells in its on-location Restaurant/Wine Shop. The annual requirement of these boxes is 1,200, and each box costs $30. The ordering and carrying costs are $10 per order and 20%, respectively. The supplier from whom the Dream Resorts purchases these boxes sells them only in lots of 20, that is, you only purchase quantities in multiples of 20 boxes. Required: A. How many boxes should the confectioner order so as to minimise inventory total stocking costs? (8 marks) B. If the supplier offers 2% discount on the cost of each box when the purchases are in quantities of 300 at a time, should the confectioner accept this offer? (6 marks) C. Suppose the supplier has decided that instead of the 2% discount offer, a price reduction of $0.25 will be used for the order quantities as shown below: ORDER QUANTITY COST PER BOX Less than 100 $30.00 100 to 199 $29.75 200 or more $29.50 What order quantity should Dream Resorts make?
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