Answer:
HBSD should take the discount because it will
lead to as savings of $1,120.00
Explanation:
step 1
<em>Determine the the inventory cost of EOQ</em>
EOQ =√ (2× Co× D)/Ch
= √(2× 100× 50,000)/ 80% × $0.50
= 5,000 units
Inventory cost = Purchase cost + Ordering cost + carrying cost
$
Purchase cost = 50,000 × $0.50 = 25,000.00
Ordering cost = (50,000/5000)× 100 = 1,000
carrying cost = (5000/2) × $0.50 × 80% = <u>1,000</u>
Total cost <u>27,000.</u>
Step 2
<em>Determine the inventory cost for order of 10,000 gallons</em>
Order of 10,000 gallons
Purchase cost = $(0.50-0.03) × 50,000 = 23,500.
Ordering cost = (50,000/10,000) × 100 = 500
Carrying cost = (10000/2) × $(0.50-0.03)× 80% =<u>1880</u>
Total cost <u> 25,880.</u>
Step 3
<em>Compare the cost under the two options</em>
HBSD should take the discount because it will
lead to as savings of $1,120.00 i.e (927,000 - 25,880.)
