XYZ manufacturing makes dishwashers. One of the components of the dishwasher is the valve that controls the water coming into the machine. They estimate that they will need 215,000 of these valves in the coming year spread evenly over the year. They can order these once a month or they can order all 215,000 at the beginning of the year. If they order all of them at the beginning of the year they can save 5% of the price of the valve. Each valve costs $10 and each order costs $200 to place. They can invest idle cash at a rate of 8% a) Should XYZ purchase all the units up front or should they order monthly? (show calculations) b) If they had no specific opportunity for the cash tied up, but wanted to keep cash available in case something comes up, would that change the answer to part a) and why?

Answer rating: 100% (QA)

a To determine whether XYZ should purchase all the units up front or order monthly we need to compare the total cost of both options Ordering Monthly Number of Orders 12 one order per month Order Quan... View the full answer