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Each year, company XYZ purchases 480,000 gallons of extra virgin olive oil. Ordering costs are $50 per order, and the carrying cost, as a percentage
Each year, company XYZ purchases 480,000 gallons of extra virgin olive oil. Ordering costs are $50 per order, and the carrying cost, as a percentage of inventory value, is 60 percent. The purchase price to the company is $0.80 per gallon. Management currently orders the EOQ each time an order is placed. No safety stock is carried. The supplier is now offering a quantity discount of $0.02 per gallon if the order is 15,000 gallons at a time. Should the company take the discount?
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