Posted: December 28th, 2015

What is the annual percentage interest cost of not taking cash discounts under the trade terms 2/10, n/30?

The following information relates to one of the materials used by ABC Ltd.
Material usage per annum    = 20 000 units Purchase price     = $16 per unit !
Storage (or carrying) cost per annum  = 25% of purchase price Cost per order     = $25 Safety stock     = 1 000 units Calculate: (i) the economic order quantity (ii) the average stock (or inventory) (iii) cost savings effected when ordering in economic order quantity rather than in lots of 2 000 units.

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