Anomaly – Discount on Order

Hi John Sir,

I have a doubt in the way an answer has been worked out in BPP revision kit. My doubt is though the question is silent, a 2 per cent discount on order is being taken also on Annual holding cost. I dint understand the logic.( Question 6.19)

The Question

Purchase Price $25 p.u
Annual Demand 1800 units
Ordering cost $ 32
Annual Holding Cost $ 4.50
EOQ 160 Units

What is the minimum total cost assuming a discount of 2% given on orders of 300 and over ?

Options

B 44 953.5
D 44 967

My Doubt :

I got answer as D while BPP solution states as B, On further investigation i found out BPP did

Holding Cost for 1 unit of Inventory for 1 year $ 4.50 * 98% = $4.41

I did not understand the logic of taking 98% of Holding Cost. Though i went thru u r lecture in quite depth and understand that holding cost does include a part of cost of financing the purchase and subsequent blocking of funds however holding cost also includes couple of other costs like actual warehouse rent etc which is not a factor of the price at which you purchased and so the discount.

Can you kindly clarify how safely the assumption of entire 2 per cent discount is being conveniently passed on to holding cost in these workings by BPP

Thanks a Ton
Amit