A purchase manager has decided to place orders for minimum quantity of 500 numbers of a particular item in order to get a discount of 10%. From the records it was found that in the last year, 8 orders each of size 200 numbers had been placed. Given:

ordering cost is Rs. 500 per order, inventory–carrying cost is 40% of the inventory value and the cost per unit is Rs. 400.

• Is the purchase manager justifi ed in his decision?

• What will be the effect of the purchase manager’s decision on the company?