Assume that Palmer Executive Pens uses 1,250,000 gallons of ink each year. Further, assume thatPalmer can order the ink at a cost of $2 per gallon plus fixed ordering costs of $100 per order. The firm'scarrying cost is 20 percent of the inventory value, at cost. 8. Refer to Palmer Pens. Now, suppose the manufacturer offers a discount of 0.5 percent for orders ofa least 40,000 gallons. Should Palmer increase its ordering quantity to take the discount?a. Yes; it will save $1,125 if it takes the discount.b. No; it will lose $1,125 if it takes the discount.c. Yes; it will save $11,375 if it takes the discount.d. No; it will lose $11,415 if it takes the discount.e. Yes; it will save $11,415 if it takes the discount.

Step 1 Economic Order Quantity is the level of inventory where inventory holding and carrying cost I…

Assume that Palmer Executive Pens uses 1,250,000 gallons of ink each year. Further, assume that Palmer can order the ink at a cost of $2 per gallon plus fixed ordering costs of $100 per order. The carrying cost is 20 percent of the inventory value, at cost.

Assume that Palmer Executive Pens uses 1,250,000 gallons of ink each year. Further, assume that Palmer can order the ink at a cost of $2 per gallon plus fixed ordering costs of $100 per order. The carrying cost is 20 percent of the inventory value, at cost.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

100%

Assume that Palmer Executive Pens uses 1,250,000 gallons of ink each year. Further, assume that
Palmer can order the ink at a cost of $2 per gallon plus fixed ordering costs of $100 per order. The firm's
carrying cost is 20 percent of the inventory value, at cost.

8. Refer to Palmer Pens. Now, suppose the manufacturer offers a discount of 0.5 percent for orders of
a least 40,000 gallons. Should Palmer increase its ordering quantity to take the discount?
a. Yes; it will save $1,125 if it takes the discount.
b. No; it will lose $1,125 if it takes the discount.
c. Yes; it will save $11,375 if it takes the discount.
d. No; it will lose $11,415 if it takes the discount.
e. Yes; it will save $11,415 if it takes the discount.

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