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Discounts and Carrying Costs

A distributor of metal detectors has an annual demand of two thousand units for a certain type.The cost to the distributor is $400 per detector, carrying cost is estimated to be 20% of the unit cost and the ordering cost is $25 per order. If the Distributor orders in quantities of 250 or more, he can get a discount of 10% on the cost of the detectors. Assuming that the demand is constant, should the distributor take the discount? Show your working.

Solution Summary

This solution calculates the fixed cost, carrying cost, variable cost and total cost of the first case and second case. It then compares the two and gives the advice if the distributor should take the discount.