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On an annual requirement of 100 items spread evenly throughout the year, any purchaser has an opportunity of buying all 100 units at a price of $100 each, or buying 10 units at a time at a price of $150. If the inventory carrying cost is 25 percent per year and assuming no ordering costs

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hyderali230

Answer:

Buying all 100 unit will save $3,937.5.

Explanation:

Buying 100 unit

Average Inventory ( 100 / 2 )            50 units

 Purchase cost ( 100 x 100 )             $10,000

+Carrying cost ( 50 x 100 x 25%)      $1,250

= Total cost                                                       $11,250

Buying 10 unit

Average Inventory ( 10 / 2 )              5 units

Purchase cost ( 100 x 150 )              $15,000

+Carrying cost ( 5 x 150 x 25%)       $187.50

= Total cost                                                       $12,500

Saving                                                               $3,937.5

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