Your factory buys and uses a components for production at rupees 10 pe...
Current Cost Analysis
- Annual Requirement: 1000 units
- Cost per Unit: ₹10
- Total Purchase Cost: ₹10,000
- Carrying Cost: 10% of Inventory
- Average Inventory (for EOQ): 500 units
- Carrying Cost: ₹500 per annum
- Ordering Cost: ₹40 per order
- Number of Orders (if ordering 1000 units): 1
- Total Ordering Cost: ₹40
Total Cost without Discount
- Total Cost = Purchase Cost + Ordering Cost + Carrying Cost
- Total Cost = ₹10,000 + ₹40 + ₹500 = ₹10,540
Proposal Evaluation for Bulk Order
- Bulk Order Quantity: 2000 units
- Discount: 3% on ₹10 per unit
- Discounted Unit Cost: ₹10 - (3% of ₹10) = ₹9.70
- Total Cost for Bulk Order: 2000 units × ₹9.70 = ₹19,400
- Carrying Cost for Bulk Order:
- Average Inventory = 1000 units
- Carrying Cost = 10% of (₹9.70 × 1000) = ₹970
- Ordering Cost: ₹40 (only one order)
Total Cost with Discount
- Total Cost = Purchase Cost + Ordering Cost + Carrying Cost
- Total Cost = ₹19,400 + ₹40 + ₹970 = ₹20,410
Recommendation
- Total Cost without Discount: ₹10,540
- Total Cost with Discount: ₹20,410
- Conclusion: Ordering 2000 pieces for a discount does not yield savings. The total cost without the bulk order is significantly lower. It is advisable to continue with the current ordering strategy for cost efficiency.