Karachi Limited is a large retailer of sports goods. The company buys footballs from a supplier...

 

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Karachi Limited is a large retailer of sports goods. The company buys footballs from a supplier in Sialkot. Karachi Limited uses its own truck to pick the footballs from Sialkot. The truck capacity is 2,000 footballs per trip and the company has been getting a full load of footballs at each trip, making 12 trips each year. Recently the supplier revised its prices and offered quantity discount as under: Quantity 2,000 3,000 4,000 6,000 8,000 Unit price (Rs.) 400 390 380 370 360 Other related data is given below: All the purchases are required to be made in lots of 1,000 footballs. The cost of making one trip is Rs. 15,000. The company has the option to hire a third party for transportation which would charge Rs. 9 per football. The cost of placing an order is Rs. 2,000. The carrying cost of one football for one year is Rs. 80. Required a) Work out the most economical option. b) Compute the annual savings in case the company revises its policy in accordance with the computation in (i) above Karachi Limited is a large retailer of sports goods. The company buys footballs from a supplier in Sialkot. Karachi Limited uses its own truck to pick the footballs from Sialkot. The truck capacity is 2,000 footballs per trip and the company has been getting a full load of footballs at each trip, making 12 trips each year. Recently the supplier revised its prices and offered quantity discount as under: Quantity 2,000 3,000 4,000 6,000 8,000 Unit price (Rs.) 400 390 380 370 360 Other related data is given below: All the purchases are required to be made in lots of 1,000 footballs. The cost of making one trip is Rs. 15,000. The company has the option to hire a third party for transportation which would charge Rs. 9 per football. The cost of placing an order is Rs. 2,000. The carrying cost of one football for one year is Rs. 80. Required a) Work out the most economical option. b) Compute the annual savings in case the company revises its policy in accordance with the computation in (i) above

Answer rating: 100% (QA)

To calculate the most economical option and the annual savings we will compare the total costs of using the companys truck and hiring a third party for transportation at each quantity discount level L... View the full answer