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Point uses the economic order quantity (EOQ) model to establish the reorder quantity for raw material Y. The company holds no buffer inventory. Information relating to raw material Y is as follows:
Annual usage 48,000 unitsPurchase price $80 per unitOrdering costs $120 per orderAnnual holding costs 10% of the purchase price
Required:
Problem 1: Calculate
a. The EOQ for raw material Y isb. The total annual cost of purchasing, ordering and holding inventory of raw material Y is:c. The supplier has offered Point a discount of 1% on the purchase price if each order placed is for 2,000 units.
Problem 2: Calculate the total annual saving to Point of accepting this offer.
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