In Delhi Ltd. the following data is available for one of the A class items of inventory: Annual usage 1000 units Ordering cost ₹ 400 Carrying cost 40% Unit cost ₹ 20 Which of the following strategies being considered wou

Given Annual usage (A) = 1,000 units Ordering cost (B) = ₹ 400 Carrying cost (C) = ₹ 20 * 40% = ₹ 8 Strategy I: Place 4 orders of equal size i.e. 250 units each every year. Ordering cost = 4 * ₹ 400 = ₹ 1600 Inventory carrying cost = (Order size/2) * C = (250/2)* 8 = ₹ 1,000 Cost of 1,000 units = 1000 * ₹ 20 = ₹ 20,000 Total cost = ₹ 1,600 + ₹ 1,000 + ₹ 20,000 = ₹ 22,600 Strategy II: Place an order of 500 units at a time No. of orders = 1,000/500 = 2 orders Ordering cost = 2 * ₹ 400 = ₹ 800 Cost of 1,000 units = 1000 * {₹ 20 - (0.10 * ₹ 20)} = ₹ 18,000 Inventory carrying cost = (Order size/2) * C = (500/2) * (₹ 18 * 40%) = ₹ 1,800 Total cost = ₹ 800 + ₹ 18,000 + ₹ 1,800 = ₹ 20,600 Decision: As the total cost in case of Strategy II is less than Strategy I, therefore Strategy II is recommended.