Kingsgrove Ltd sells 1,000 tonnes of soil each year and demand is constant over time. The purchase
Question:
Kingsgrove Ltd sells 1,000 tonnes of soil each year and demand is constant over time. The purchase cost of each tonne is $1 and the cost of placing and handling an order is estimated to be $5. The cost of holding 1 tonne of soil for one year is estimated to be $1. The business uses the EOQ model to determine the appropriate order quantity and holds no buffer inventories.
KingsgroveLtd purchases the soil from the supplier on credit. It usually takes 60 days to pay the suppliers. Because of the recent economic issue, the supplier wants HIJ Ltd to pay within 30 days and offers 5% discount for early payment.
Required:
1.Calculate the cost of ordering in this product.
2. Calculate the approximate equivalent annual percentage cost of the 5% discount
3. Should KingsgroveLtd accept the discount offer and pay its supplier within 30 days? Provide explain and justify your answers.
Hints: Show all calculations. Use simple interest.
Expert Answer:
1 Cost of ordering EOQ Economic Order Quantity formula EOQ sqrt2 Demand Ordering cost Holding cost G... View the full answer
