An enterprise consumes 25,600 units of a component

Solution

EOQ = √(2AD/C) = √(2×25,600×600 / 12) = √25,60,000 = 1,600 units So, EOQ = 1,600 units, which is less than 1,800, so the firm won’t get the discount at EOQ. We need to compare: Case A: Order 1,600 units (no discount) Case B: Order 1,800 units (gets 2% discount) Case A: No Discount (Order Quantity = 1,600 units) • Unit Price = ₹200 • Orders/year = 25,600 / 1,600 = 16 • Ordering Cost = 16 × ₹600 = ₹9,600 • Avg Inventory = 1,600 / 2 = 800 • Carrying Cost = 800 × ₹12 = ₹9,600 • Purchase Cost = 25,600 × ₹200 = ₹51,20,000 • Total Cost (No Discount) = ₹51,20,000 + ₹9,600 + ₹9,600 = =₹51,39,200 Case B: With 2% Discount (Order Quantity = 1,800 units) • Unit Price = ₹200 – 2% = ₹196 • Orders/year = 25,600 / 1,800 ≈ 14.22 → use 14.22 in calculation • Ordering Cost = 14.22 × ₹600 ≈ ₹8,532 • Avg Inventory = 1,800 / 2 = 900 • Carrying Cost = 900 × ₹12 = ₹10,800 • Purchase Cost = 25,600 × ₹196 = ₹50,17,600 Total Cost (With Discount) = ₹50,17,600 + ₹8,532 + ₹10,800=₹50,36,932 The enterprise should accept the discount. It results in a lower total annual