Question

A company manufactures a special product which requires a component 'Alpha'. The following llu
particulars are collected for the year 2015.
8,000 units
1. Annual demand of Alpha
200 per order
2. Cost of placing an order
3. Cost per unit of Alpha
400
4.
Carrying cost % p.a.
20%
The company has been offered a quantity discount of 4% on the purchase of 'Alpha' provided the
order size is 4,000 components at a time.
Required:
(a) Compute the economic order quantity.
(b) Advise whether the quantity discount offer can be accepted.
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Answer 1

Answer:

company manufactures a special product which requires a component 'Alpha'. The following llu

particulars are collected for the year 2015.

8,000 units

1. Annual demand of Alpha

200 per order

2. Cost of placing an order

3. Cost per unit of Alpha

400

4.

Carrying cost % p.a.

20%

The company has been offered a quantity discount of 4% on the purchase of 'Alpha' provided the

order size is 4,000 components at a time.

Required:

(a) Compute the economic order quantity.

(b) Advise whether the quantity discount