Each Year, Holly's Best Salad Dressing, Inc

question 28

Multiple Choice

Each year, Holly's Best Salad Dressing, Inc.(HBSD) purchases 50,000 gallons of extra virgin olive oil.Ordering costs are $100 per order, and the carrying cost, as a percentage of inventory value, is 80 percent.The purchase price to HBSD is $0.50 per gallon.Management currently orders the EOQ each time an order is placed.No safety stock is carried.The supplier is now offering a quantity discount of $0.03 per gallon if HBSD orders 10,000 gallons at a time.Should HBSD take the discount?

• A) From a cost standpoint, HBSD is indifferent.
• B) No, the cost exceeds the benefit by $500.
• C) No, the cost exceeds the benefit by $1,000.
• D) Yes, the benefit exceeds the cost by $500.
• E) Yes, the benefit exceeds the cost by $1,120.

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