BUDZ PROFESSIONAL TRAINERS AND CONSULTANTS

Question1
KXP Co currently orders 15,000 units per month of Product Z, demand for which is
constant. There is only one supplier of Product Z and the cost of Product Z purchases
over the last year was $540,000. The supplier has offered a 2% discount for orders of
Product Z of 30,000 units or more. Each order costs KXP Co $150 to place and the holding
cost is $0.24 per unit per year.
Required:
Calculate whether the bulk purchase discount offered by the supplier is financially
acceptable.
Question 2
It has been suggested that the order size for Product KN5 should be determined using
the economic order quantity model (EOQ).
WQZ Co forecasts that demand for Product KN5 will be 160,000 units in the coming year
and it has traditionally ordered 10% of annual demand per order. The ordering cost is
expected to be $400 per order while the holding cost is expected to be $5.12 per unit per
year. A buffer inventory of 5,000 units of Product KN5 will be maintained, whether orders
are made by the traditional method or using the economic ordering quantity model.
Required:
Calculate the cost of the current ordering policy and the change in the costs of inventory
management that will arise if the economic order quantity is used to determine the
optimum order size for Product KN5
Question 3
From a different supplier, Nesud Co purchases $2·4 million per year of Component K at
a price of $5 per component. Consumption of Component K can be assumed to be at a
constant rate throughout the year. The company orders components at the start of each
month in order to meet demand and the cost of placing each order is $248·44. The
holding cost for Component K is $1·06 per unit per year.
Required: Evaluate whether Nesud Co should adopt an economic order quantity
approach to ordering Component K.

CP BUDALAH NSUBUGA 0775581435/0700189530 1