A company is reviewing its stock policy, and has the following alternatives available for the evaluation of
Question:
A company is reviewing its stock policy, and has the following alternatives available for the evaluation of stock number 12789:
(i) Purchase stock twice monthly, 100 units.
(ii) Purchase monthly, 200 units.
(iii) Purchase every three months, 600 units.
(iv) Purchase six monthly, 1200 units.
(v) Purchase annually, 2400 units.
It is ascertained that the purchase price per unit is SOp for deliveries up to 500 units. A 5% discount is offered by the supplier on the whole order where deliveries are 501 up to 1000, and 10% reduction on the total order for deliveries in excess of 1000.
Each purchase order incurs administration costs of £5.
Storage. interest on capital and other costs are 25p per unit of average stock quantity held.
You are required to advise management on the optimum order size.
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