Boyles Ltd buys raw materials from a supplier using the economic order quantity method having estimated the cost of ordering as $100 per order and the annual holding cost for a unit of materials as $2 pa per unit. The cost of financing average stock is currently $5500 pa, and annual demand is for 7000 units. A unit cost is $115 to buy, and the supplier offers credit terms that each order to be paid on date that the next order is made.

The supplier has offered that if the order size is set at 1050 units, they will continue to offer terms for the duration of the order cycle. Given working capital costs Boyles Ltd 5% pa to finance, What would be the cost or saving of moving to the 1050 unit order size, assuming minimum stock levels are maintained and instantaneous delivery of orders?

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