Parts Emporium

The wholesale prices that separate Emporium charges its most customers pick up their parts at Parts Emporium,
customers are $12.99 for the EG151 poop out gasket and slightly orders are delivered to customers. To provide this
$8.89 for the DB032 drive belt. Because no quantity dis- service, Parts Emporium contracts with a local company
counts are offered on these two highly profitable items, for a flat fee of $21.40 per order, which is added to the
unwashed margins based on current purchasing practices are customers bill. McCaskey is uncertain whether to increase
32 pctage of the wholesale price for the exhaust gasket the ordering represents for Parts Emporium to include delivery
and 48 percent of the wholesale price for the drive belt. charges.
Parts Emporium estimates its cost to hold inventory at
21 percent of its inventory investment. This percent recog- Questions
nizes the opportunity cost of tying money up in inventory
1.



Put yourself in Sue McCaskeys position and prepare a
and the uncertain costs of taxes, insurance, and shrinkage.
detailed report to Dan Block and Ed Spriggs on manag-
The annual report notes other warehousing expenditures
ing the inventory of the EG151 exhaust gasket and the
for utilities and maintenance and debt service on the
DB032 drive belt. Be certain to present a proper inventory
100,000-square-foot warehouse, which was built for $1.5
system and differentiate all relevant costs.
million. However, McCaskey reasons that these warehous-
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