A company has a contract to supply 5,000 units of an item per year to the retail store. An estimated ordering cost is ₹ 150 every time the order is made and the insurance cost is ₹ 30. The carrying cost is 25% of the unit price. The following are the quantity discounts that the company offers to ensure bulk purchases by the retailer: Order size Price per unit (₹) Less than 1,000 500 1,000 -2,999 450 3,000-4,999 400 5,000 or more 350 What should be the order size as a part of best inventory policy? Give justification for your recommendation.
A company has a contract to supply 5,000 units of an item per year to the retail store. An estimated ordering cost is ₹ 150 every time the order is made and the insurance cost is ₹ 30. The carrying cost is 25% of the unit price. The following are the quantity discounts that the company offers to ensure bulk purchases by the retailer: Order size Price per unit (₹) Less than 1,000 500 1,000 -2,999 450 3,000-4,999 400 5,000 or more 350 What should be the order size as a part of best inventory policy? Give justification for your recommendation.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A company has a contract to supply 5,000 units of an item per year to the retail store. An
estimated ordering cost is ₹ 150 every time the order is made and the insurance cost is ₹ 30.
The carrying cost is 25% of the unit price. The following are the quantity discounts that the
company offers to ensure bulk purchases by the retailer:
Order size Price per unit (₹)
Less than 1,000 500
1,000 -2,999 450
3,000-4,999 400
5,000 or more 350
What should be the order size as a part of best inventory policy? Give justification for your
recommendation.
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