- 10 Marks
FM – L2 – Q107 – Inventory Management
Evaluate if Kweku Ltd should accept a foreign supplier's discount offer for groundnut orders, comparing EOQ and special order costs.
Question
Kweku Ltd, a manufacturer of groundnut paste, is evaluating whether to continue with its economic order quantity (EOQ) or accept a special order from a foreign supplier for groundnut purchases. The relevant financial data is provided below:
| Description | Value |
|---|---|
| Purchase price per bag of groundnut | GH¢360 |
| Holding cost per annum (10% of the cost of a bag of groundnut) | GH¢36 |
| Ordering cost per order | GH¢7.70 |
| Annual demand of groundnut paste | 6,240 bags |
| Normal usage per month | 520 bags |
| Minimum usage per month | Not specified |
| Maximum usage | Not specified |
Required:
The foreign supplier offers an 8% reduction in the price per bag of groundnut if Kweku Ltd orders 3,000 bags each time. Advise Kweku Ltd on whether to accept the supplier’s offer.
Find Related Questions by Tags, levels, etc.
Report an error
