Economic order quantity and quantity discount. EDP Associates is a small data processing company. Waring Paper Products, a regional distributor of paper products, has proposed a quantity discount on one type of computer paper purchased by EDP Associates. EDP currently pays $12 per carton for this paper and uses 15,000 cartons annually. Waring has offered a 5% cash discount on all quantity orders in excess of 1,000 cartons, provided an order is for 5,000 cartons, i.e., for each order of 5,000 cartons, EDP would pay the full price of $12 per carton on the first 1,000 cartons and a discounted price of $11.40 for each additional carton.

It has been determined that the cost to place an order is $64.80, and that the estimated carrying cost is 20% of the average inventory investment.

Required:

(1) Compute the optimum number of cartons of paper EDP Associates should be ordering currently without consideration of the quantity discount.

(2) Determine the cost effect of orders of 5,000 units instead of ordering the number computed in requirement 

Answer rating: 100% (QA)

Compute the optimum number of cartons of paper EDP Associates should be ordering currently without c... View the full answer