M7_IND3. Floral Beauty, Inc., is a large floral arrangements store located in Asheville Mall. Bridal Lilies, which are a specially created bunch of lilies for bridal bouquets, cost Floral Beauty $19 each. There is an annual demand for 22,000 Bridal Lilies. The manager of Floral Beauty has determined that the ordering cost is $85 per order, and the carrying cost, as a percentage of the unit cost, is 14%. Floral Beauty is now considering a new supplier of Bridal Lilies. Each lily would cost only $17.50, but to get this discount, Floral Beauty would have to buy shipments of 2,000 Bridal Lilies at a time.

Should Floral Beauty use the new supplier and take this discount for quantity buying?

Use or Accept

Result in  Incremental benefits of $32,559

Explanation:

Step 1 Calculate the Economic Order Quantity (EOQ)

EOQ = √(2×Total Demand×Ordering Cost)/Holding Cost

        =  √(2× 22,000 × $85)/ $19×14%

        =  1186

Step 2 Decide whether benefits exceeds the cost if company moves from EOQ to purchasing larger quantities

Calculation of Savings

Savings in Purchasing Price ($1.50×22,000)      33,000

Savings in Ordering Costs  

(22000/ 1186×$85) - (22000/ 2000×$85)               642

Total Savings                                                        33,642

Additional Holding Costs

((1186-2000)/2)×($19×14%)                                     (1,083)

Incremental Benefit / (Cost)                                 32,559

Using new supplier would result in  Incremental benefits of $32,559.Therefore,  use the new supplier and take this discount for quantity buying.

there are so many examples for that in different areas, like biology experiment carried out in our lab recently.

here's one link :