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Question - A publishing company has a regular demand for a particular type of paper of 1,000 pages per day. The company works a 5 day week for 50 weeks a year.
The company currently buys in the paper in batches of 5000 pages, at a cost of £0.50 per page. The company estimates that it costs £10 to place each order, irrespective of the size of the order. Stockholding costs are 7% of the stock value per annum.
Required -
a) Calculate the total annual cost (including the cost of the paper) using the company's current ordering policy.
b) Determine the Economic Order Quantity (EOQ). Calculate the annual saving that the company would make if it were to implement this ordering policy.
c) If the supplier offers a discount as follows
5% 15,000 pages or more
Show whether or not the company can reduce its costs by taking advantage of this discount.
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