Student question MBI is a manufacturer of personal computers. All its personal computers use a 3.5-inch high-density floppy disk drive which it purchases from Ynos. MBI operates its factory 52 weeks per year, which requires assembling 100 of these floppy disk drives into computers per week. MBI’s annual holding cost rate is 20 percent of the value (based on purchase cost) of the inventory. Regardless of order size, the administrative cost of placing an order with Ynos has been estimated to be $50. A quantity discount is offered by Ynos for large orders as shown below, where the price for each category applies to every disk drive purchased. Determine the optimal order quantity according to the EOQ model with quantity discounts. What is the resulting total cost per year? What is the resulting total cost per year? ### Price Discounts on Disk DrivesThe table below illustrates the pricing structure for disk drives based on the quantity purchased. The table is divided into three categories of discounts, each corresponding to a specific range of quantities purchased and the price per disk drive for each category.| Discount Category | Quantity Purchased | Price (per Disk Drive) ||-------------------|--------------------|------------------------|| 1 | 1 to 99 | $100 || 2 | 100 to 499 | $95 || 3 | 500 or more | $90 |**Explanation of Pricing Structure:**1. **Discount Category 1:** - **Quantity Purchased:** 1 to 99 - **Price per Disk Drive:** $1002. **Discount Category 2:** - **Quantity Purchased:** 100 to 499 - **Price per Disk Drive:** $953. **Discount Category 3:** - **Quantity Purchased:** 500 or more - **Price per Disk Drive:** $90**Summary:**The table demonstrates that the price per disk drive decreases as the quantity purchased increases, providing an incentive for bulk purchases. Customers who purchase between 1 and 99 disk drives pay $100 per unit. For quantities ranging from 100 to 499, the price drops to $95 per disk drive. For purchases of 500 or more, the discounted price is $90 per disk drive.

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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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MBI is a manufacturer of personal computers. All its personal computers use a 3.5-inch high-density floppy disk drive which it purchases from Ynos. MBI operates its factory 52 weeks per year, which requires assembling 100 of these floppy disk drives into computers per week. MBI’s annual holding cost rate is 20 percent of the value (based on purchase cost) of the inventory. Regardless of order size, the administrative cost of placing an order with Ynos has been estimated to be $50. A quantity discount is offered by Ynos for large orders as shown below, where the price for each category applies to every disk drive purchased.

Determine the optimal order quantity according to the EOQ model with quantity discounts. What is the resulting total cost per year?

What is the resulting total cost per year?

### Price Discounts on Disk Drives

The table below illustrates the pricing structure for disk drives based on the quantity purchased. The table is divided into three categories of discounts, each corresponding to a specific range of quantities purchased and the price per disk drive for each category.

| Discount Category | Quantity Purchased | Price (per Disk Drive) |
|-------------------|--------------------|------------------------|
| 1 | 1 to 99 | $100 |
| 2 | 100 to 499 | $95 |
| 3 | 500 or more | $90 |

**Explanation of Pricing Structure:**

1. **Discount Category 1:**
- **Quantity Purchased:** 1 to 99
- **Price per Disk Drive:** $100

2. **Discount Category 2:**
- **Quantity Purchased:** 100 to 499
- **Price per Disk Drive:** $95

3. **Discount Category 3:**
- **Quantity Purchased:** 500 or more
- **Price per Disk Drive:** $90

**Summary:**
The table demonstrates that the price per disk drive decreases as the quantity purchased increases, providing an incentive for bulk purchases. Customers who purchase between 1 and 99 disk drives pay $100 per unit. For quantities ranging from 100 to 499, the price drops to $95 per disk drive. For purchases of 500 or more, the discounted price is $90 per disk drive.

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