. 2 (Marks 2 + 8)

Uni Lever is in process to reduce its inventory costs. Annual demand for a raw material costing Rs. 12 per unit is 60,000 units per year. Inventory management costs for this raw material are ordering cost Rs. 6 per order and holding cost Rs. 05 per unit per year.

The supplier of this raw material has offered a bulk purchase discount of 1% for orders of 10,000 units and 2% discount on order of 15000 unit or more. If bulk purchase orders are made regularly, it is expected that annual holding cost for this raw material will increase to Rs. 2 per unit per year.

Required

1. Calculate the total cost of inventory for the raw material when using the economic order quantity.
2. Wether accepting the discount offered by the supplier will minimise the total cost of inventory for the raw material. Which quantity discount offer should be accepted?