13 Stock management. Whirlygig plc manufactures and markets automatic dishwashing machines. Among the components which it purchases each year from external suppliers for assembly into the finished article are window units, of which it uses 20,000 units per annum.

It is considering buying in larger amounts in order to claim quantity discounts. This will lower the number of orders placed but raise the administrative and other costs of placing and receiving orders. Details of actual and expected ordering and carrying costs are given in the table below:

ActualProposed O=Ordering cost per order £31.25 £120 P=Purchase price per item £6.25 £6.00 I=(annual) Inventory holding cost (as a percentage of the purchase price)

20% 20%