Question A2 AXA Ltd has monthly demand for 20,000 components that are used in its manufacturing processes. The following information is available: Current terms of trade Payment in full within 90 days (which AXA meets) Cost per component 2.00 Cost of ordering 120 per order Costs of holding components in inventory 1 per component per year Current number of orders per year 12 orders The supplier has offered either a discount of 0.5% for payment in full within 30 days, or a discount of 2.6% on orders of 40,000 components. If the bulk purchase discount is taken, the cost of holding components in inventory would increase to 2.40 per component per year due to the need for a larger storage facility. Assume that there are 365 days in the year and that AXA Ltd can borrow short-term at 4% per year. Required: i) What is the current Economic Order Quantity (EOQ)? (3 marks) ii) If AXA Ltd currently places orders of 20,000 components, how much would it save from using EOQ? (8 marks) ii) Would AXA Ltd benefit from accepting the bulk order discount? (7 marks) iv) Would AXA Ltd benefit from accepting the early settlement discount? (7 marks) Question A2 AXA Ltd has monthly demand for 20,000 components that are used in its manufacturing processes. The following information is available: Current terms of trade Payment in full within 90 days (which AXA meets) Cost per component 2.00 Cost of ordering 120 per order Costs of holding components in inventory 1 per component per year Current number of orders per year 12 orders The supplier has offered either a discount of 0.5% for payment in full within 30 days, or a discount of 2.6% on orders of 40,000 components. If the bulk purchase discount is taken, the cost of holding components in inventory would increase to 2.40 per component per year due to the need for a larger storage facility. Assume that there are 365 days in the year and that AXA Ltd can borrow short-term at 4% per year. Required: i) What is the current Economic Order Quantity (EOQ)? (3 marks) ii) If AXA Ltd currently places orders of 20,000 components, how much would it save from using EOQ? (8 marks) ii) Would AXA Ltd benefit from accepting the bulk order discount? (7 marks) iv) Would AXA Ltd benefit from accepting the early settlement discount? (7 marks)