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Margos Marshmallow Shoppe purchases 36,000 bags of sugar each year. They pay $20 to place each order and have an annual carrying cost of 20%
Margos Marshmallow Shoppe purchases 36,000 bags of sugar each year. They pay $20 to place each order and have an annual carrying cost of 20% of the purchase price per bag. Each bag costs $2 and management likes to keep 500 bags for safety stock. The sugar vendor now offers a quantity discount of $0.05 per bag when Margos orders 10,000 bags.
- Determine the EOQ
- Calculate the Total Inventory Cost at EOQ with safety stock.
- Determine the before tax benefit or loss of accepting the quantity discount. (hint: find TIC with new order quantity to take the discount; compare the added cost to the savings from the discount)
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