Example $04$:

Modern Distributors Limited $($MDL$)$ is a distributor of CALTIN which is used in various

industries and its demand is evenly distributed throughout the year.

The related information is as follows:

Annual demand in the country is $240,000$ tons whereas MDL$\text{'}$s share is $32\mathrm{.}5\%$ thereof.

The average sale price is Rs$.22,125$ per ton whereas the profit margin is $25\%$ of cost$.$

The annual variable costs associated with purchasing department are expected to

be Rs$.4,224,000$ during the current year. It has been estimated that $10\%$ of the

variable costs relate to purchasing of CALTIN.

Presently, MDL follows the policy of purchasing $6,500$ tons at a time.

Carrying cost is estimated at $1\%$ of cost of material.

MDL maintains a buffer stock of $2,000$ tons.

Required

Compute the amount of savings that can be achieved if MDL adopts the policy of placing orders

based on Economic Order Quantity.