The Q Milk Co. is a distribution company located in Madrid, that produces and distributes dairy products and beverages in Spain. They have recently grown and now also distribute product in other European and Latin America countries. The company started 40 years ago and was the first to introduce a revolutionary packaging (TetraPak) made of plastic, aluminum and cardboard that increases the shelf life of milk and juice. One of their most important suppliers, the Global Packaging Co., supplies the FourPak5.0 package. The Q Milk Co. has a long-term and a very stable relationship with the Global Packaging Co. Indeed, the demand of FourPak5.0 is very steady at 7,500 units per month.

The Q Milk Co. has an annual holding cost of 25 percent (based on an annual interest rate). Purchasing a FourPak5.0 package costs Q Milk Co. $0.3 per unit, and they sell on an average price for $1.2 per unit. It costs the Q Milk Co. $200 to place an order, and the Global Packaging Co. recently imposed their customers to order in multiples of 100. For this problem assume there are 364 days per year.

Question PART 1:

Considering the data in PART 1, what is the Total Annual Cost (in dollars)? Round to nearest integer and do not enter a dollar sign. Note: The Total Annual Cost includes: Purchasing Cost, Ordering Cost, and Holding Cost.

Question PART 2:

The Global Packaging Co. offers the Q Milk Co. a quantity discount. If the Q Milk Co. orders a full container (30,000 units) per shipment they will reduce the purchase cost of each FourPak5.0 by 1% (all unit discounts).

If you were to take this discount, how much would you order and what would your expected Total Annual Cost be?

What would your order quantity be if you take this discount?

Question PART 3:

What would the expected Total Annual Cost be if you take this discount? (round to nearest integer and do not enter a dollar sign)

Question PART 4:

Considering the previous result (part 2 and part 3), which of the following statements is true?:

The cycle stock is higher in part 3 (all unit discounts) than in part 2 The Total Anual Cost is higher in part 3 (with all unit discounts) than in part 2 The EOQ computed in part 3 (all unit discounts) is higher than 30,000 units In Part 3 (all unit discounts), purchase cost is not a relevant cost

Question PART 5:

Consider a new scenario (independent of Part 3). The Global Packaging Co. offers now an incremental discount of 0.5% off for those items ordered in excess of 30,000 units. That is, the discount applies to the 30,001st item and beyond, but not to the first 30,000 items. (Use the same data as in Part 1)

Based on this information, which of the following statements are true? You are allowed to select more than one.

Q Milk should not take this new discount deal Q Milk should take the incremental discount deal and order less than 30,000 units Q Milk should take the incremental discount deal and order exactly 30,000 units Q Milk should take the incremental discount deal and order more than 30,000 units Q Milk should take this incremental discount deal if they increased the discount from 0.5% to 6.0% None of these are true.