Stocky Ltd purchases raw materials from a supplier using the Economic Order Quantity methodology having estimated the Cost of Ordering as $120$ per order and the annual holding cost for a unit of materials as $3$ pa per unit. The average stock holding is currently $960$ units, and annual demand is for $8,000$ units. Each unit costs $125$ to purchase, and the supplier offers credit terms that require each order to be paid on the date that the next order is made.

The supplier has offered that if the order size is set at $1200$ units, they will continue to offer credit terms for the duration of the order cycle. Working capital costs Stocky Ltd $5\%$ pa to finance, and buffer stock levels are required to be maintained at current buffer levels.

A$)$ what is the current economic order quantity for Stocky Ltd$?(2$ marks$)$

B$)$ what is the current buffer stock levels in units? $(2$ marks$)$

C$)$ what is the saving$/$cost of moving to the $1200$ unit order size for

Holding Costs

Order Costs

Stock Funding Costs $(6$ marks$)$

D$)$ What is the benefit or cost in Trade Creditor funding costs of moving to a $1200$ unit order size, if any, given the supplier credit terms offered? $(5$ marks$)$

E$)$ Given the answers to parts A$-$D$,$ should Stocky take up the supplier's offer? $(1$ mark$)$

F$)$ Describe TWO limitations of the EOQ approach to stock management $(4$ marks$)$