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purchase price $25/unit
Annual demand 1800
ordering cost $32
Holding cost $4.5
EOQ 160 units
What is the minimum total cost assuming a discount of 2% given on order of 300.ANS:
purchase cost 25×1800 x 98% =44100
ordering cost 1800/300 x 32 = 192
Holding cost ___________=
Total annual cost ___________=
please complete it :)….Why are you asking me to do this? You must have an answer in the same book in which you found the question, so you should ask whatever it is in the answer that you are not clear about and then I will help you.
You need to calculate the total cost with the EOQ of 160 units.
You then need to calculate the total cost if they order 300 units each time.The minimum total cost is the lower of the two.
I explain how to deal with quantity discounts in detail, with examples, in the free lectures on inventory control. I really do suggest that you watch them 🙂
The lectures are a complete free course for Paper F2 and cover everything needed to be able to pass the exam well.
Assuming the question is exactly as you typed it, then the annual holding cost = 300/2 x $4.50 = $675.
If, on the other hand, the question actually says that the holding cost is 18% of purchase price, then the annual holding cost = 300/2 x 18% x 98% x $25 = $661.50
Again, watch my free lectures!
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