Question 5 [34]

Earthgrow Ltd is is a producer of a wide range of vegetables for the retail industry. The company uses large quantities of fertilizer. The fertilizer supplier has introduced a volume-based discount scheme as indicated in the table below for its customers.

Discount scheme

0% 05 000

6% 5 0017 000 8% 7 00110 000

Earthgrows production manager is considering the discount scheme and requested your assistance to make an informed decision. He provided the following information:

Annual demand (100 kg bags of 144000 fertilizer)

Discount

Order size

Cost of one unit of the product Fixed cost per order

Annual holding cost per unit Economic order quantity (EOQ)

R6.20

R25.00

18% of unit cost 2 535

Required:

Show all calculations and round off all answers to two decimals.

Should the company consider taking any of the discounts on order quantities offered?