Verona Enterprises Ltd. purchases 2,000 units of a particular item per year at a unit cost of ₹20. The ordering cost is ₹50 per order and the inventory carrying cost is 25%. (b) If a 3% discount is offered by the supplie

(b) Total cost when discount offer is availed Units per order = 1,000 units No. of orders to be placed = 2,000/1,000 = 2 orders Average inventory = 1,000/2 = 500 units Unit cost after discount = ₹20 - (3% of ₹20) = ₹19.40 Carrying cost = 25% of ₹19.40 = ₹4.85 Amount (₹) Ordering cost (2 * ₹50) 100 Carrying cost of average inventory (500 * ₹4.85) 2,425 Purchase cost (2,000 * ₹19.40) 38,800 41,325 Advise: As the total cost of inventory is less in case of EOQ, therefore the firm should not accept discount offer.