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18 February, 17:00

On an annual requirement of 100 items spread evenly throughout the year, any purchaser has an opportunity of buying all 100 units at a price of $100 each, or buying 10 units at a time at a price of $150. If the inventory carrying cost is 25 percent per year and assuming no ordering costs

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  1. 18 February, 17:26
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    Buying all 100 unit will save $3,937.5.

    Explanation:

    Buying 100 unit

    Average Inventory (100 / 2) 50 units

    Purchase cost (100 x 100) $10,000

    +Carrying cost (50 x 100 x 25%) $1,250

    = Total cost $11,250

    Buying 10 unit

    Average Inventory (10 / 2) 5 units

    Purchase cost (100 x 150) $15,000

    +Carrying cost (5 x 150 x 25%) $187.50

    = Total cost $12,500

    Saving $3,937.5
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