plz help me solving this question

nabutt Registered Posts: 86 ? ? ?
a company uses components at the rate of 500 units per month which r bot in at a cost of 1.20 each from supplier, it cost 20 each time to place an orderregardless of the quantity ordered. the supplier offers 5% discount on purchase price for orders over 2000 items or more the current EOQ is 1000 units the total holding cost is 20% per anumof the value of stock held.

the holding cost at order quantites of 1000 items for yr is 120

( 20% x 1.20 x 1000/2 = 120 )

what wil be the holding cost for 2000 items

a- 228 b- 280



  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034
    If you order 2000 items each time an order is placed, then 6000 items can be bought in 3 orders
    Cost: 3 x £20 per order = £60.00

    The average stock will be 2000/2 = 1000 units which are held in stock at 20% of the purchase price per unit (at this level of order the price is £1.14 so the holding cost per unit per year is £0.228)

    1000 X £0.228 = £228.00

    This sort of question would also need you to build in the price paid for the stock being bought: 6,000 x £1.14 = £6,840.00

    The idea of lowering holding cost per unit merely because the price paid has a discount has often made me smile, I understand the theory; lower insurance etc. But have you really experienced a change to your storage costs simply because the price was lower?)
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