Waec Model Questions Vol1 2018 Commerce Question 24

A retailer stores a product in a warehouse. Annual demand for the product is 12,000 units. The ordering cost per order is ₦5,000. Holding cost equals 20% of the unit cost per year. The standard unit cost is ₦2,000, but the supplier offers a price break: if the order quantity is at least 600 units, the unit cost falls to ₦1,800. The warehouse can hold a maximum of 800 units at any time. Using the Economic Order Quantity (EOQ) model and considering the price break, determine the order quantity that minimises the total annual inventory cost (including purchase cost, ordering cost and holding cost) and compute that minimum total cost. Provide the optimal order quantity (in units) and the corresponding total annual cost (in naira).