JP Limited, manufacturers of a special product, follows the policy of EOQ (Economic Order Quantity) for one of its components. The component's details are as follows:

Annual cost of carrying one unit in inventory: 10% of purchase price.
Total cost of inventory and ordering per annum: Rs. 4,000.
The company has been offered a discount of 2% on the price of the component, provided the lot size is 2,000 component at a time.
You are required to:
(a) Compute the EOQ
(b) Advise whether the quantity discount offer can be accepted. (Assume that the inventory carrying cost does not vary according to discount policy.)
(c) Would your advise differ if the company is offered 5% discount on a single order?

Transcribed Image Text:

Purchase price for component Cost of an order Rs. 200 Rs. 100