Exhibit 12-2A Moving Company Purchases Large Cardboard Shipping Boxes from a Supplier

question 6

Essay

Exhibit 12-2A moving company purchases large cardboard shipping boxes from a supplier. The company uses approximately 10,000 of these boxes for packing customers' belongings each year, and demand for the boxes is essentially constant throughout the year. The box supplier offers the following pricing schedule, based on the quantity of boxes ordered:The fixed cost of placing an order is $50, and the company's cost of capital is 7% per year.
$$\begin{array} { l r r r r } \text { Unit purchase cost } & \$ 5.00 & \$ 4.50 & \$ 4.00 & \$ 3.50 \\\text { Order is more than } & 0 & 251 & 501 & 751 \\\text { Order is less than } & 250 & 500 & 750 & 1000\end{array}$$
-Refer to Exhibit 12-2. Suppose there is a storage cost of $1 per unit. Make the appropriate change to your Solver model and find the optimal order quantity in that case. Does the unit purchasing price change?

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Definitions:

Taxable Income

The amount of income used to calculate how much tax an individual or a company owes to the government in a particular tax year.

GAAP

Generally Accepted Accounting Principles - a collection of commonly-followed accounting rules and standards for financial reporting.

Deferred Income Taxes

Taxes that are accrued but not yet paid or collected, often due to differences in accounting methods between tax regulations and accounting principles.

Valuation Allowance

A reserve established against deferred tax assets to reduce their value to an amount that's more likely than not to be realized.