Question 2

ATP is a vehicle manufacturing company which purchases most of the component from suppliers all around the globe. To minimize inventory costs, management decided to use Economic Order Quantity to control its inventory level. KWP is ATPs long-term supplier for tire, and they have agreed to strict delivery time and quality requirement. Based on the 202X budget, the following information was collected from production: 1. Based on pre-order, ATP requires 5250 units of tire each month for the first 4 months of the year and 3625 units of tires. each month for the remainder of the year. 2. The carrying cost per unit is R2 per year.. 3. The cost per order is R1,000.

Question 2.3 (6 Marks)

United Distributors normal credit terms to X-Tyres Stores are 30 days but is prepared to allow a 4% rebate if XTyres Stores pays the account within 14 days. Calculate the cost to X-Tyres Stores of not accepting the discount.