00:01
Yes, hello.
00:01
So to evaluate whether the new contract is worth it compared to the old contract, we want to consider both the purchase and holding costs under each scenario.
00:09
Looking at the old contract, the unit price is $475.
00:14
So the holding cost per unit is 25 % of that.
00:18
So 25 % of $475 is going to be equal to $1 .175.
00:25
The total cost per unit then is $475 plus that, so that's $5 .9375.
00:30
And then the annual cost for 10 ,000 units is $5 .9375 times 10 ,000, which works out to be $59 ,375.
00:43
And then for the new contract, well, under the new contract, the price per unit depends on the order quantity.
00:50
So since the retailer sells about 10 ,000 units a year, they'll likely order in the 7 ,500 to 20 ,000 range for the best price.
01:02
Now in this case, we have the unit cost $4...