Question

The supplier in Example 1 will increase his unit price from $10 to $11 on 1 January. What amount should be purchased on 31 December before the price increase is effective if the stock position is 346 units? What will be the cost saving of the special purchase?

Answer 1

The company could save $1 per unit by purchasing additional stock before the price increase. Without knowing future demand, it's difficult to suggest how much to buy, but if maintaining the current stock level, a purchase of 346 units before the price increase would save $346 in total.

Step-by-step explanation:

In the scenario provided, if the supplier will increase the unit price from $10 to $11 on January 1, the company should consider purchasing additional stock before the price increase if doing so will result in a cost saving. To determine the amount to purchase, we would need additional information about the company's future demands. However, the cost saving from such a special purchase on December 31 would simply be the difference in unit cost multiplied by the number of units purchased.

Assuming the company decides to purchase additional stock at the current price of $10 per unit, the cost saving for each unit would be $(11 - 10) = $1 per unit. If the stock position is currently 346 units and the company wishes to operate with the same stock level after the price increase, they would save 346 * $1 = $346 by purchasing on December 31.