EOQ and the impact of quantity discounts Point Ltd uses the economic order quantity (EOQ) model to establish the re- order quantity for raw material Y. The company holds no buffer stock. Information relating to raw material Y as follows: Annual usage Purchase price Ordering costs 48000 units 80 per unit 120 per order Annual holding costs 10 per cent of the purchase price Required:

(a) Calculate: (i) the EOQ for raw material Y, and (ii) the total annual cost for purchasing, ordering and holding stocks of raw material Y. The supplier has offered Point Ltd a discount of 1 per cent on the purchase price if each order placed is for 2000 units.

(b) Calculate the total annual saving to Point Ltd of accepting this offer.

(c) List FOUR examples of holding costs. (5 marks) ACCA Financial Information for Management