Happy Pet, Inc., is a large pet store located in Long Beach Mall. Although the s

Question

Happy Pet, Inc., is a large pet store located in Long Beach Mall. Although the store specializes in dogs, it also sells fish, turtle, and bird supplies. The Everlast Leader, a leather lead for dogs, costs Happy Pet $7 each. There is an annual demand for 6,000 Everlast Leaders. The manager has determined that the ordering cost is $20 per order and the carrying cost, as a percentage of unit cost, is 15%. Happy Pet is now considering a new supplier of Everlast Leaders. Each lead would cost only $6.65; but in order to get this discount, Happy Pet would have to buy shipments of 3,000 at a time. Should Happy Pet use the new supplier and take this discount for quantity buying?


What is the total cost with the discount?

Explanation / Answer

The original cost with the first supplier comes out to $ 7 per Happy Pet $20 order cost $4.05 is the 15% carrying cost Totaling $31.05 The annual demand is 6000 $31.05 x 6000 = $186,300 The second supplier cost would come out to $6.65 per happy pet $20 order cost $4 is the 15% carrying cost Totaling $30.65 The minimum order must be atleast 3000 but since the annual demand is 6000 that minimum order is met twice. $30.65 x 6000 = $183,900 The total discount is $186,300 - $183,900 = $2400 Thus Happy pet should use the new supplier because it save that much annually

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