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A manufacturing company uses rupees 50000 material per year the administration cost per purchase is rupees 50 and the carrying cost is 20% of the average inventory. the company currently has an optimum purchasing policy but has been offered a 0.4% discount if they purchase five times per year.should the offer be accepted?if not what counter offer should be made?
Most Upvoted Answer
A manufacturing company uses rupees 50000 material per year the admini...
Solution:
Given information:
- Material cost per year = Rs. 50,000
- Administration cost per purchase = Rs. 50
- Carrying cost = 20% of the average inventory
- Optimum purchasing policy = ?
- Discount offered = 0.4%
- Number of purchases if discount is availed = 5
To determine whether the offer should be accepted or not, we need to calculate the total cost under the current policy and the cost under the new policy with the discount.
1. Cost under the current policy:
Let's assume the company's current policy is to make 'x' purchases in a year, and the average inventory held is 'I'. Then,
- Quantity purchased each time = (50000/x)
- Total cost of purchases = 50000
- Total administration cost = 50*x
- Average inventory held = I/2 (assuming constant rate of consumption throughout the year)
- Carrying cost = 20% of (50000/x) * I/2 = 5000I/x
Total cost under the current policy = 50000 + 50x + 5000I/x
2. Cost under the new policy with discount:
If the company avails the discount and makes 5 purchases in a year, then the quantity purchased each time would be (50000/5) = 10000.
- Total cost of purchases = 50000*(1-0.004) = 49800
- Total administration cost = 50*5 = 250
- Average inventory held = 10000/2 = 5000
- Carrying cost = 20% of 5000*I = 1000I
Total cost under the new policy with discount = 49800 + 250 + 1000I
3. Comparison of costs:
We need to compare the total cost under the current policy and the new policy with discount to decide whether the offer should be accepted or not.
Total cost under the current policy = 50000 + 50x + 5000I/x
Total cost under the new policy with discount = 49800 + 250 + 1000I
If the new policy is cheaper, then the company should accept the offer.
50000 + 50x + 5000I/x > 49800 + 250 + 1000I
Simplifying the inequality,
50x + 5000I/x - 1000I > 2050
Multiplying both sides by 'x',
50x^2 + 5000I - 1000Ix > 2050x
Rearranging the terms,
50x^2 - 2050x + 5000I > 1000Ix
Dividing both sides by 'x',
50x - 2050 + 5000I/x > 1000I
Therefore, if (50x - 2050 + 5000I/x) > 1000I, then the company should accept the offer.
4. Counter offer:
If the new policy with discount is not cheaper, then the company should negotiate a counter offer.
- One possible counter offer is to increase the discount percentage. The company can calculate the minimum discount percentage required to make the new policy cheaper than the current policy.
- Another counter offer is to increase the number of
Given information:
- Material cost per year = Rs. 50,000
- Administration cost per purchase = Rs. 50
- Carrying cost = 20% of the average inventory
- Optimum purchasing policy = ?
- Discount offered = 0.4%
- Number of purchases if discount is availed = 5
To determine whether the offer should be accepted or not, we need to calculate the total cost under the current policy and the cost under the new policy with the discount.
1. Cost under the current policy:
Let's assume the company's current policy is to make 'x' purchases in a year, and the average inventory held is 'I'. Then,
- Quantity purchased each time = (50000/x)
- Total cost of purchases = 50000
- Total administration cost = 50*x
- Average inventory held = I/2 (assuming constant rate of consumption throughout the year)
- Carrying cost = 20% of (50000/x) * I/2 = 5000I/x
Total cost under the current policy = 50000 + 50x + 5000I/x
2. Cost under the new policy with discount:
If the company avails the discount and makes 5 purchases in a year, then the quantity purchased each time would be (50000/5) = 10000.
- Total cost of purchases = 50000*(1-0.004) = 49800
- Total administration cost = 50*5 = 250
- Average inventory held = 10000/2 = 5000
- Carrying cost = 20% of 5000*I = 1000I
Total cost under the new policy with discount = 49800 + 250 + 1000I
3. Comparison of costs:
We need to compare the total cost under the current policy and the new policy with discount to decide whether the offer should be accepted or not.
Total cost under the current policy = 50000 + 50x + 5000I/x
Total cost under the new policy with discount = 49800 + 250 + 1000I
If the new policy is cheaper, then the company should accept the offer.
50000 + 50x + 5000I/x > 49800 + 250 + 1000I
Simplifying the inequality,
50x + 5000I/x - 1000I > 2050
Multiplying both sides by 'x',
50x^2 + 5000I - 1000Ix > 2050x
Rearranging the terms,
50x^2 - 2050x + 5000I > 1000Ix
Dividing both sides by 'x',
50x - 2050 + 5000I/x > 1000I
Therefore, if (50x - 2050 + 5000I/x) > 1000I, then the company should accept the offer.
4. Counter offer:
If the new policy with discount is not cheaper, then the company should negotiate a counter offer.
- One possible counter offer is to increase the discount percentage. The company can calculate the minimum discount percentage required to make the new policy cheaper than the current policy.
- Another counter offer is to increase the number of
Community Answer
A manufacturing company uses rupees 50000 material per year the admini...
Let cost per article is rs 1
so annual consumption will be 50000/1=50000
ordering cost= 50 rs
carrying cost is 20% so:1* 20/100=0.20
because carrying cost always charged on price of per material.
e.o.q= √2co/√i
√2*50000*50/√0.20
=5000
no.of order to be placed= c/e.o.q
= 50000/5000=10 orders
optimum purchasing policy
material cost = 50000
ordering cost= 500
10*50
carrying cost=. 500
5000*1*0.20/2
51000
discount policy
material cost = 49800
(1-0.4%)50000
ordering cost=. 250
(5*50)
carrying cost=. 996
49800*1*0.20/2*5
51046
offer should not be accepted as it will increase cost be 46 rs
counter offer
200 rs discount 0.4%
1rs. 0.4/200
46rs. 0.4*46/200
= 0.1 %
0.4%+0.1%=0.5% will be offered then it will be accepted
so annual consumption will be 50000/1=50000
ordering cost= 50 rs
carrying cost is 20% so:1* 20/100=0.20
because carrying cost always charged on price of per material.
e.o.q= √2co/√i
√2*50000*50/√0.20
=5000
no.of order to be placed= c/e.o.q
= 50000/5000=10 orders
optimum purchasing policy
material cost = 50000
ordering cost= 500
10*50
carrying cost=. 500
5000*1*0.20/2
51000
discount policy
material cost = 49800
(1-0.4%)50000
ordering cost=. 250
(5*50)
carrying cost=. 996
49800*1*0.20/2*5
51046
offer should not be accepted as it will increase cost be 46 rs
counter offer
200 rs discount 0.4%
1rs. 0.4/200
46rs. 0.4*46/200
= 0.1 %
0.4%+0.1%=0.5% will be offered then it will be accepted
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A manufacturing company uses rupees 50000 material per year the administration cost per purchase is rupees 50 and the carrying cost is 20% of the average inventory. the company currently has an optimum purchasing policy but has been offered a 0.4% discount if they purchase five times per year.should the offer be accepted?if not what counter offer should be made?
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A manufacturing company uses rupees 50000 material per year the administration cost per purchase is rupees 50 and the carrying cost is 20% of the average inventory. the company currently has an optimum purchasing policy but has been offered a 0.4% discount if they purchase five times per year.should the offer be accepted?if not what counter offer should be made? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about A manufacturing company uses rupees 50000 material per year the administration cost per purchase is rupees 50 and the carrying cost is 20% of the average inventory. the company currently has an optimum purchasing policy but has been offered a 0.4% discount if they purchase five times per year.should the offer be accepted?if not what counter offer should be made? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A manufacturing company uses rupees 50000 material per year the administration cost per purchase is rupees 50 and the carrying cost is 20% of the average inventory. the company currently has an optimum purchasing policy but has been offered a 0.4% discount if they purchase five times per year.should the offer be accepted?if not what counter offer should be made?.
A manufacturing company uses rupees 50000 material per year the administration cost per purchase is rupees 50 and the carrying cost is 20% of the average inventory. the company currently has an optimum purchasing policy but has been offered a 0.4% discount if they purchase five times per year.should the offer be accepted?if not what counter offer should be made? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about A manufacturing company uses rupees 50000 material per year the administration cost per purchase is rupees 50 and the carrying cost is 20% of the average inventory. the company currently has an optimum purchasing policy but has been offered a 0.4% discount if they purchase five times per year.should the offer be accepted?if not what counter offer should be made? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A manufacturing company uses rupees 50000 material per year the administration cost per purchase is rupees 50 and the carrying cost is 20% of the average inventory. the company currently has an optimum purchasing policy but has been offered a 0.4% discount if they purchase five times per year.should the offer be accepted?if not what counter offer should be made?.
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A manufacturing company uses rupees 50000 material per year the administration cost per purchase is rupees 50 and the carrying cost is 20% of the average inventory. the company currently has an optimum purchasing policy but has been offered a 0.4% discount if they purchase five times per year.should the offer be accepted?if not what counter offer should be made?, a detailed solution for A manufacturing company uses rupees 50000 material per year the administration cost per purchase is rupees 50 and the carrying cost is 20% of the average inventory. the company currently has an optimum purchasing policy but has been offered a 0.4% discount if they purchase five times per year.should the offer be accepted?if not what counter offer should be made? has been provided alongside types of A manufacturing company uses rupees 50000 material per year the administration cost per purchase is rupees 50 and the carrying cost is 20% of the average inventory. the company currently has an optimum purchasing policy but has been offered a 0.4% discount if they purchase five times per year.should the offer be accepted?if not what counter offer should be made? theory, EduRev gives you an
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