Exponential Electronix is considering some changes in the ordering, storage and usage of one of its inventory items.

It has just received a proposal from one of its suppliers.

The supplier will give a 10% discount if the product is ordered 6,000 units at a time. However, because of the size of the order, the delivery time is doubled, so the company would need to maintain a sizable safety stock.

The carrying cost will continue to be very high because of the strictly controlled storage environment required by the product, the temperature, humidity, atmosphere, etc.

	Current	Proposed
Annual usage in units	24,000 units	24,000 units
Current unit purchase price	$6.00
Proposed new price (after 10% discount)		$5.40
Current order size in units (EOQ)	2,000 units
Proposed new order size		6,000 units
Present delivery time in days	30
Proposed new delivery time in days		60
Carrying cost as percentage of unit price	40%	40%
Safety stock in units	0	3,000 units
Current proposed cost per purchase order	$200	$200

1 In the current situation, calculate the total of the carrying cost, ordering cost (therefore total relevant cost) AND the cost of units purchased for the year.

2 In the proposed situation, calculate the ordering cost.

3 In the proposed situation, calculate the total cost of units purchased for the year.

4 In the proposed situation, calculate the carrying cost (including safety stock

5

How much TOTAL advantage would there be in dollars per year in changing to the proposed situation?

Group of answer choices

4

5