Bora Supermarket carries on its operations in Kisumu town. On annual basis, it orders 480,000 pens from a Nairobi based distributor.

Bora Supermarket carries on its operations in Kisumu town. On annual basis, it orders 480,000 pens from a Nairobi based distributor. A packet of twenty four pens delivered to Bora‟s warehouse costs Sh.480 including transport charges. The supermarket borrows money from BHK bank at an interest rate of 10% per annum to finance its inventories. The supermarket also incurs Sh.1, 500 to place an order for the pens and Sh.8 carrying cost for each pen. Required:

(i) Economic order quantity (EOQ) for the pens
(ii) Total cost at the economic order quantity
(iii) For orders of 72,000 pens and above, the distributor has offered a discount rate of 10% on delivery price.

Advise the management of the supermarket on whether to take advantage of the discount offer.

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Solution



Advise: They should take advantage of the discount offer as it has lower cost.

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Wilfykil answered the question on August 5, 2019 at 11:44

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