The manager of a large fishing tackle shop, open for 50 weeks each year, holds a regular stock of fishing flies. Although the manager has to purchase boxes of these items for $9.6 per box containing 12 flies, he sells them as single items. Over the past year, he has sold, on average, 12 boxes of fishing flies each week and it is likely that this level of sales will continue into the future. It is estimated that the cost of placing each order is $16. The annual cost of storage is estimated at 20% of the stock item value. The manager of the shop sets a price for his goods by taking the holding, ordering and purchasing costs and then applying an additional amount of 50% (i.e., a mark-up of 50%).
a. What is the optimum number of orders for boxes of fishing flies per year? (6marks)
b. What is the price per fly the manager should charge? (5marks)
c. The supplier offers a discount of 4% on the price of each box of flies if the manager purchases 500 boxes at a time. It can be assumed that there are no price effects on demand. Is this discount advantageous to the customers in terms of price? (8marks)
d. What percentage discount is required for the order quantity of 500 boxes if this discount is to be beneficial to the customers? (6marks)