MaWood Limited 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 is as follows:

AnnualUsage 48,000 units

PurchasePrice

80 per unit

Ordering Costs

120 per order

Annualholding costs 10% of the purchase price

You are required to calculate:

a. Economic Order Quantity (EOQ) for material Y

b. The total annual cost for purchasing, ordering and holding stocks of material Y

The supplier has offered Awo Woods Limited a discount of 1 per cent on the purchase price if each order placed is for 2000 units

c. Calculate the total annual saving to Awo Limited of accepting this offer.

d. List four examples of holding costs