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Is the reference to short term financing at 5% a red herring? I added 5% onto annual cost but the answer doesn’t.
Qu: what is total annual cost of current purchasing policy?
Set up:
annual demand 300,000
Order placed every month
Order cost £267
Holding 0.10 per unit per year
Buffer 40% of one month’s sales
Short term finance cost 5%pa
365 days paBook answer $5454
my answer $5727 (ie 5454*1.05)Thanks
It is a bit unfair in that the intention was for the 5% to only be relevant to a later part of the question.
Something similar happened in a Section C question in the real exam, and the examiner realised it was wrong of him and so made it clear that full marks would have been given if the 5% had been taken into account. So he will have learned from his error and you do not need to worry about this happening in the real exam 🙂
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