Question

As a buyer that is sourcing a new item you have been given the following quotation information from the supplier. As you can see the supplier is offering you price breaks at various ranges of order quantities. Although other considerations will come into play when determining the quantity you may ultimately order, as a first step you want to verify that the quantity discounts being offered are reasonable.

Quantity Range	1 – 9 units	10 - 25 units	26 – 75 units	76 – 200 units	201 – 500 units	501 & above
Price per Unit in Range	$27.80 each	$26.48 each	$26.15 each	$25.75 each	$25.30 each	$24.70 each

              

A. Calculate the incremental, or marginal unit cost for each quantity range.

     Show all work in a step-by-step fashion to identify how you calculated your numbers

     In order to receive partial or full credit. (15 points)

     

B.       Based on your analysis above, briefly describe the questions or discussion you might         have with the supplier. (5 points)          

Answer 1

A. Here, Incremental cost has been calculated as you start to decrease the quantity of goods being bought. Because the quantity discount will decrease with decrease in number of quantity bought.

Quantity Range	501 & above	201 – 500 units	76 – 200 units	26 – 75 units	10 - 25 units	1 – 9 units
Price per Unit in Range	$24.70each	$25.30each	$25.75each	$26.15each	$26.48each	$27.80each
Marginal (Incremental Unit Cost)	NA	$0.60 each (25.30-24.7)	$0.45 each (25.75-25.30)	$0.40 each (26.15-25.75)	$0.33 each (26.48-26.15)	$1.32 each (27.80-26.48)

B. Expected set of questions would be:

1. Will there be any difference in quality of items among all price range.

2. Additional discount for goods purchased above 500 units.

3. Time required between order placement by buyer and fulfillment by seller.

4. What will be the Transportation cost and who will bear it.