A company manufactures a product from a raw material, which is purchased at `60 per kg. The company incurs a handling cost of `360 plus freight of `390 per order. The incremental carrying cost of...

A company manufactures a product from a raw material, which is purchased at `60 per kg. The company incurs a handling cost of `360 plus freight of `390 per order. The incremental carrying cost of inventory of raw material is `0.50 per kg. per month. In addition, the cost of working capital finance on the investment in inventory of raw material is `9 per kg per annum. The annual production of the product is 1,00,000 units and 2.5 units are obtained from one kg of raw material.

REQUIRED:

(i) Calculate the economic order quantity of raw materials.

(ii) Advise, how frequently should orders for procurement be placed.

(iii) If the company proposes to rationalise placement of orders on quarterly basis, what percentage of discount in the price of raw materials should be negotiated?