A company is reviewing its stock policy and has the following alternatives available for evaluating the optimal order size for stock item number 1287:

1. Purchase stock twice monthly, 100 units.

2. Purchase monthly, 200 units

3. Purchase every three months, 600 units

4. Purchase every six months, 1200 units

5. Purchase annually, 2400 units

It is ascertained that the purchase price per unit is Sh. 80 for deliveries upto 500 units. A 5% discount is offered by the supplier on the whole order where deliveries are 501 upto 1,000 and 10% reduction on the total order for deliveries in excess of 1,000.

Each purchase order incurs administration costs of Sh. 500. Storage, interest on capital and other costs are Sh. 25.per unit of average stock quantity held.

Required:

Advise management on the optimum order size.