INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS OF PAKISTAN

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1 INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS OF PAKISTAN Vision To be the Preference in Value Optimization for Business. Mission Statement To develop strategic leaders through imparting quality education and training in Management Accounting, to continually set and upgrade professional standards and to conduct research, bringing value-addition to the economy. Assignment Questions (Fall Session) Management Accounting Semester 4 INSTRUCTIONS: 1. A student who takes admission in Distance Learning Program shall be required to complete all assignments of his/her respective subjects within the same academic session. If he/she fails to complete 60% assignments within that session, he/she shall be required to re-enrol himself/herself in the next session after making payment of 100% Distance Learning Program fee. 2. Each assignment is allocated a total of 100 marks. 3. Assignments of all subjects must be submitted in the session in which the examination is to be taken. The last date for submission of 100% assignments is January 10, 2014 for Fall-2013 Examination. 4. You are required to pay Annual Subscription of Rs.1,500/- during July December each year to avoid payment of Restoration Fee of Rs.2,000/-. 5. Examination Fee is payable from December 1 to 20, 2013 [with normal fee], December 21 to 31, 2013 [with 100% late fee] and January 1 to 15, 2014 [with 200% late fee] for Fall-2013 Examination. Examination forms can be collected from any ICMAP Centre or website: 6. Assignments would not be acceptable after due date. Examination Eligibility: The students, who are enrolled under the Distance Learning Program, must have submitted 60% assignments of each subject in which they are enrolled to become eligible to appear in the examination.

2 ASSIGNMENT NO. 1 Q.1. Write a note on advantages and limitation of profit planning / budgeting. Marks = 25 Q.2. Define Cash Budget and explain purpose and nature of Cash Budget. Marks = 25 Q.3. Mat Incorporation with Rs.20,000,000 of par stock outstanding, plans to budget earning of 6%, before income tax on this stock. The marketing department budgets sales at Rs.12,000,000. The budget director approves the sales budget and expenses as follows; Marketing Administrative Financial 15% of Sales 5% of Sales 1% of Sales Labour is expected to be 50% of the total manufacturing cost; materials issued for the budgeted production will cost Rs.2,500,000; therefore, any saving in manufacturing cost will have to be in factory overhead. Inventories are to be as follows; Beginning of Year End of Year Finished Goods 800,000 1,000,000 Work in Process 100, ,000 Materials 500, ,000 Required; The projected cost of goods sold statement, showing the budgeted purchases of materials and the adjustments for inventories of materials, work in process, and finished goods. Marks = 25 Q.4. The Hat Company s sales forecast for the next quarter ending June 30, indicates the following: Product Expected Sales Ceno 21,000 Units Nepo 37,500 Teno 54,300 Inventories at the beginning and desired quantities at the end of the quarter are as follows: Product March 31 June 30 Units Ceno 5,800 6,200 Nepo 10,600 10,500 Teno 13,000 12,200 Required; A production budget for the second quarter. Marks = 25 ASSIGNMENT NO. 2 Q.1. The Scheme Company has just received a franchise to distribute air conditioners. The company commenced business on January 01, 20--, with the following assets; Cash Rupees 45,000 Inventory 94,000 Warehouse, office and equipment 800,000 All facilities and equipment have a useful life of 20 years and no residual value. First quarter sales are expected to be Rs.360,000 and should be doubled in the second quarter. Third quarter sales are expected to be Rs.1,080,000. One percent of sales are considered to be uncollectible. The gross profit margin should be 30%. Variable marketing expenses (except uncollectible accounts) are budgeted at 12% of sales and fixed marketing expenses at Rs.48,000 per quarter, exclusive of depreciation. Variable administrative

3 expenses are expected to be 3% of sales and fixed administrative expenses should total Rs.34,200 per quarter, exclusive of depreciation. Required; Forecast income statement for the second quarter. Marks = 25 Q.2. The president of a hardware manufacturing company has asked the controller to prepare an income forecast for the next year by quarters, with sales reported for each of the two major segments commercial and government. The marketing department provided the following sales estimates; 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Commercial Sales 250, , , ,000 Government Sales 100, , , ,000 The controller s office assembled these figures; (a) Cost of goods sold 46% of total sales. (b) Advertising expenditures Rs.4,000 each quarter (c) Selling expenses 10% of total sales (d) Administrative expenses 16.8% of gross profit (e) General office expenses 12% of gross profit (f) Other income Rs.8,000 per quarter (g) Corporate income tax rate 40% (1) A forecast income statement by quarters and in total. All figures should be shown in thousands of Rupees and rounded to the nearest thousand, adding four quarters across to obtain total figures. (2) An analysis of the effect of a 5% increase in commercial sales revenue, using the same income statement format as for (1) above. Q.3. Why must the management accountant continually review conventional cost classifications and the conventional assumptions regarding cost behavior? Marks = 25 Q4. (a). Prepare a flexible budget for 20x5 for the overhead expenses of a production department at the activity levels of 80%, 90% and 100%, using the information listed below: Marks =15 1. The direct labour hourly rate is expressed to be Rs % activity represents 60,000 direct labour hours 3. Variable costs: a. Indirect labour Rs per direct labour hours b. Consumable supplies Rs per direct labour hours c. Canteen and other welfare services 6% of direct and indirect labor costs 4. Semi-variable costs are expected to correlate with the direct labour hours in the same manner as for the last five years, which was: Year Direct labour hours Semi Variable costs (Rs.) 20X0 64,000 20,800 20X1 59,000 19,800 20X2 53,000 18,600 20X3 49,000 17,800 20X4 40,000 16,000 (estimate) (estimate) 5. Fixed costs: Rs. Depreciation 18,000 Maintenance 10,000 Insurance 4,000 Rates 15,000 Management salaries 25,000

4 6. Inflation is to be ignored. (b).calculate the budgets cost allowance for 20X5 assuming that 57,000 direct labour hours are worked. Marks =10 ASSIGNMENT NO. 3 Q.1. (a)what is Working Capital Management? Marks = 5 (b) Define what is meant by the term overtrading and describe some of the typical symptoms. Marks = 10 (b) Imtiaz CO buys raw materials from suppliers that allow imtiaz 2.5 months credit.the raw materials remain in inventory for 1 month, and it takes imtiaz 2 months to produce the goods.the goods are sold within a couple of days of production being completed and customers take on average 1.5 months to pay. Required Calculate Imtiaz working capital cycle. Marks = 10 Q.2. The following is the income statement of Deluxe Ltd. For the year ended December 31, Rs.000 Sales (8,000 units) 132,000 Cost of goods sold Direct Material 32,000 Direct Labour 24,000 Factory Overhead 44,800 Gross Profit 31,200 Marketing and Administrative Expense 27,200 Operating Income 4,000 Production capacity of the installed machinery is 12,000 units. Company management is conscious of the high degree of underutilized capacity is uncertain, however, whether or not the market will absorb more units of product than at present. The task of assessing product demand was assigned to a marketing research consulting firm. Results of the study made by the consultants predicted the following price volume relationships; Price Rupees Volume Units , , , ,000 An analysis of factory overhead reveals that in 1997 fixed factory overhead was Rs.28,800 and fixed marketing and administrative expenses were Rs.19,200. If new machinery is to be installed for increasing the production capacity to 19,000 units an additional capital expenditure of Rs.100,000 is required, resulting in a fixed factory overhead increase of Rs.10,000 per year The recommended level of activity. Q.3. (a) What is Discounted Cash flow (DCF) / Time Adjusted (TA) Technique? Explain briefly. Marks = 15 (b) Define the following terms; Marks = 10 a) Perpetuity b) Annuity Q.4. (a) Define the following terms; Marks = 10 a) Present value of a future sum b) Present Value of an annuity

5 (b) Define Payback Period Method. Explain with an example of Payback Period Method. Marks = 15 ASSIGNMENT NO. 4 Q.1. (a)what is present value of; Marks = 10 a) Rs.90,000 in 7 years at 8 percent? b) Rs.200,000 in 5 years at 10 percent? c) Rs.100,000 in 25 years at 6 percent? d) Rs.10,000 in 50 years at 16 percent? (b) Mr. Aslam deposited Rs.2,000 at the end of every year for 5 years. In his saving account paying 5 per cent interest compounded annually. He wants to determine how much sum of money he will have at the end of the 5 th year. Marks = 15 Q.2. (a)if ABC Company expects cash inflows from its investment proposal it has undertaken in time period zero. Rs.200,000 and Rs.150,000 for the first two years respectively and then expects annuity payment of Rs.100,000 for the next eight years, what would be the present value of cash inflows, assuming a 10 per cent rate of interest? Marks = 10 (b) Assume a sum of Rs.40,000 invested and the following cash flows for two alternatives Years Investment X Investment Y 1 6,000 15, ,000 20, ,000 10, , ,000 Required; Which of the alternatives would you select under the Payback method? Marks = 15 Q.3. The Baby Doll Company is considering the purchase of a new machine that would increase the speed of manufacturing Baby Doll and save money. The net cost of the new machine is Rs.100,000. The annual cash flows have the following projections. Year 1 Rs.32,000 Year 2 Rs.38,000 Year 3 Rs.45,000 Year 4 Rs.21,000 Year 5 Rs.10,000 a) If the cost of capital is 12 percent, what is the net present value (NPV)? b) What is the internal rate of return (IRR)? Q4 (a). Are standards the same as budgets? Marks = 05 (b) A company manufactures a chemical, dynamite, using two compounds Flash and Bang. The standard materials usage and cost of one unit of Dynamite are as follows: Rs. Flash 5 Kg. at Rs. 2 per Kg. 10 Bang 10 kg. at Rs. 3 per kg Kg. 40 In a particular period, 80 units of Dynamite were produced from 500 kg of Flash and 730 kg of Bang. Required Marks = 10 Calculate the materials usage, mix and yield variances (c) Growler Ltd is planning to make 100,000 units per period of product AA. Each unit of AA should require 2 hours to produce, with labour being paid Rs. 11 per hour. Attainable work hours are less than clock hours, so 250,000 hours have budgeted in the period.

6 Actual data for the period was: Units produce 120,000 Direct labour cost (Rs.) 3,200,00 Clock Hours 280,000 Required Marks = 10 Calculate the following variances: a) Labour rate variance b) Labour efficiency variance c) Idle time variance ASSIGNMENT NO. 5 Q.1. Fashion Fabrics Limited is considering the replacement of its old, fully depreciated knitting machine. Two new machine are available; Model 222 The cost of Model 222 is Rs.2,200,000 with a 5 year expected life and its before tax operating cost is Rs.120,000 per year. Model 666 The cost Model 666 is Rs.3,800,000 with a 8 years life and its before tax operating cost is Rs.20,000 per year. Knitting machine prices are not expected to rise, because inflation will be offset by cheaper components used in the machines. Fashion Fabrics Limited use 12% cost of capital and 35% tax rate for evaluating the capital budgeting decisions. Should the firm replace its old knitting machine, and if so, which new machine model should it use based on annual equivalent cost? Q.2. You have been just appointed as management accountant of Shan Electronics Limited. The company is considering investing in the production of an electronic security device, with an expected market life of five years. The following data has been shown to you; Investment 9,000 Proposed Electronic Security Device Project Rs.000 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Working Capital ,000 1,200 1,400 1,400 Sales 7,000 9,800 10,640 11,480 10,640 Materials 1,070 1,500 1,800 2,100 1,800 Labour 2,140 3,000 3,600 4,200 3,600 Overhead All the above cash flow and profit estimates have been prepared in terms of present day costs and prices. You have the following additional information; i) Selling price and overhead expenses are expected to increase by 5% per year. ii) Material costs and labour costs are expected to increase by 10% per year. iii) Capital allowances (tax depreciation) are allowable for taxation purposes against profits at 25% per year on a reducing balance basis. iv) Taxation on profits is at a rate of 35%, payable one year in arrears. v) The fixed assets have no expected salvage value at the end of five years. vi) The company s after tax required rate of return is 15%. Assume that all receipts and payments arise at the end of the year to which they relate, except those in year 0, which occur immediately. Working capital would release at the end of the project s life. a) Estimate the NPV of the proposed project. Justify whether it is a viable project or not.

7 b) Calculate by how much the discount rate would have to hange to yield a net present value NPV of approximately zero. Q.3. Five Star department stores has recently received the findings of a survey that suggest that potential sales are being lost because many customers dislike having to use the elevator (lift) in the store and prefer to go across the street to a competitor Moon Store which has and escalator. The elevator was purchased ten years ago for Rs.560,000 and depreciated to a salvage value of Rs.160,000 ten years from now on the basis of straight line basis. It can be sold today for Rs.320,000. The escalator can be purchased for Rs.1,200,000 and would be depreciated using straight line basis to a salvage value of Rs.400,000 in ten years. In addition, Five Star anticipates that having an escalator rather than an elevator will increase operating income from sales by Rs.80,000 annually and decrease operating expenses by Rs.20,000 annually. Income tax rate of Five Star is 25%. a) Calculate the present book value of the elevator. b) Calculate initial cash out flow associated with the replacement of the elevator. Be sure to include any required changes in working capital. c) Work out incremental changes in annual cash flow, if they replaced the elevator. d) Calculate payback period for replacement decision. e) What is the replacement decision, if Five Star uses discounting rate of 12% for calculating net present value and profitability Index? f) What is the replacement decision, if Five Star uses discounting rate of 16% for calculating net present value and profitability index? g) Calculate internal rate of return of the replacement decision. h) Is the replacement proposal acceptable? Discuss qualitative factors in case of not accepting the proposal when Five Star s required rate of return 10%. Q.4. Sun Pharma intends to develop a new medicine CURA for diabetic patients. Sun Pharma invested a sum of Rs.1,100,000 over the past two years. An amount of Rs.225,000 was spent on market research earlier in the year. Market research suggested the price of Rs.110 per packet and the expected product life cycle of four years. Specialized machinery and equipment at a cost of rs.1,500,000 must be purchased to produce the medicine. This machinery and equipment has an expected life of four years and will have no residual value at the end of this period having maximum production capacity of 15,000 packets per year. Advertising expenses are estimated to Rs.250,000 per annum to sell the 15,000 packets of CURA. Based on the maximum output of 15,000 packets per year, the CURA has the following expected costs per packet (excluding the advertising costs above); Rs. Materials Labour Overheads Other details; a) The cost of materials includes Rs.10 for material Zee that is currently in stock and can be used for this product. The change is based on the original cost of Rs.10 for 100 grams material. Material Zee is currently used other area of the business and the cost of replacing it is Rs.15 per 100 grams. The material Zee could easily be sold at a price of Rs per 100 grams. b) The labour cost is the payment to employees that will be directly involved in producing the CURA. These employees have no work at present and if the CURA is not produced, they will be fired immediately at a cost of Rs.1,150,000. If, however, the CURA is produced, no redundancy costs will be incurred at the end of four years. c) The overheads include depreciation for the new machinery and equipment. The company depreciates such assets in equal installments over their expected life with nil salvage value. All other overheads included in the above figure are incurred in production of the CURA.

8 d) The business has a target capital structure of 50% equity and 50% loan capital. The market cost of equity is 12% and the market cost of loan capital is 8%. The CURA project has the same level of risk as that of other projects undertaken if the project is accepted; it will be financed entirely by equity. However, the level of investment required is very small compared to the size of the business. e) Ignore taxation. 1. Calculate the Net Present Value of the project. 2. What happens to NPV if sale of CURA has only achieved 12,000 packets per year? Is the project viable? 3. What is NPV if only yearly advertisement expenses are increased to Rs.312,500? Is the project viable? ASSIGNMENT NO. 6 Q.1. (a) What is meant by a product s CM ratio? How is this ratio useful in planning business operations? Marks = 10 (b) Briefly explain what is meant by environmentally sustainable profits? Marks = 10 (c) What is meant by the margin of safety? Marks = 5 Q.2. (a) Throughput accounting has been described as super variable costing Explain why throughput accounting is sometimes described in this way and identify briefly the differences between throughput accounting and marginal or variable cost accounting. Marks = 15 (b) Critics of standard costing argue that it is of limited usefulness for cost control in an inflationary environment. Comment on this statement and explain whether or not you agree with it. Marks = 10 Q.3. (a) What are the assumptions behind C-V-P analysis? Marks = 10 (b) What are the general steps involved in analyzing a decision when marginal costing is to be used? Marks = 15 Q.4. (a) A company makes a single product with a sales price of Rs.10 and a marginal cost of Rs.6, fixed costs are Rs.60,000 per annum. Calculate; Marks = 15 a) Number of units to break even b) Sales at breakeven point c) C/S Ratio d) What number of units will be sold to achieve a profit of Rs.20,000 per annum? e) What level of sales will achieve a profit of Rs.20,000 per annum? (b) The Little Rock Company shows fixed expense of Rs.12,150, an margin of safety ratio of 25%, and contribution margin ratio of 30% for one month s operations. Required; Marks = The breakeven point in Rupees 2. Actual Sales 3. Profit for the month ASSIGNMENT NO. 7 Q.1. Prepare a flexible budget for 20x5 for the overhead expenses of a production department At the activity levels of 80%, 90% and 100%, using the information listed below: Marks = The direct labour hourly rate is expressed to be Rs % activity represents 60,000 direct labour hours 3. Variable costs: a. Indirect labour Rs per direct labour hours b. Consumable supplies Rs per direct labour hours c. Canteen and other welfare services 6% of direct and indirect labor costs 4. Semi-variable costs are expected to correlate with the direct labour hours in the same manner as for the last five years, which was:

9 Year Direct labour hours Semi Variable costs (Rs.) 20X0 64,000 20,800 20X1 59,000 19,800 20X2 53,000 18,600 20X3 49,000 17,800 20X4 40,000 16,000 (estimate) (estimate) 5. Fixed costs: Rs. Depreciation 18,000 Maintenance 10,000 Insurance 4,000 Rates 15,000 Management salaries 25, Inflation is to be ignored. (b). Calculate the budgets cost allowance for 20X5 assuming that 57,000 direct labour hours are worked. The objective function is to maximize the contribution margin where CM = Rs.4x + Rs.2y. From the following answers, the feasible solution that will maximize the contribution margin; 150x and 100y, 165x and 90y, 170x and 80y, 200x and 50y. Q.3.(a). Comment on future role of standard cost Marks = 15 (b).define benchmarking Marks = 5 (c).what is the formula market size variance. Marks = 5 Q.4.Water and sons makes a product, the splash which has variable production cost of Rs. 6 per unit and a sales price of Rs. 10 per unit and the begging of sep 2000 there were no opening inventories and productions during the month was 20,000 units. Fixed cost for the month was Rs. 30,000 for product and Rs. 15,000 for Administration, Sales and Distribution. There was no variable marketing cost. Required: Calculate the contribution and profit for September using marginal costing principals if sales were as follows: Marks = a) 10,000 Splashes b) 15,000 Splashes c) 20,000 Splashes 2. Using above example assume the normal level of activity is 15,000 splashes per month and that budgeted fixed production costs were Rs. 30,000 prepare profits statement for September using absorption costing. Marks = 10 ASSIGNMENT NO. 8 Q.1 (a). Define sensitivity analysis? What are the limitations of sensitivity Analysis? Marks = 15 (b) AR,which has a cost of capital of 8%, is considering a project.the most likely cash flows associated with the project are as follows. Year 0 Year1 Year2 RS 000 RS 000 RS 000 Initial investment (7000) Variable costs (2000) (2000) Cash flows(650,000units at Rs 10 per unit) Net cash flows (7000) ,500 Required Measure the sensitivity of the project to changes in variables. Marks = 15

10 Q.2.Write a short note on the followings; Marks = 25 (a) Activity Based Costing (b) Cost Drivers (c) Just in Time Manufacturing (d) Paper Less Transaction Q.3. What are Shadow Prices and what constraints shadow prices have? Marks = 20 Q. 4 (a) A company is able to produce four products and is planning its production mix for the next period. Estimated cost, sales, and production data are given below; W X Y Z Rs. Rs. Rs. Rs. Selling Price / unit Labour (@ Rs.2 / hour) Material (@ Re.1 / Kg) Contribution Resources / Unit Labour (Hours) Materials (Kgs) Maximum Demand (Units) Based on the above data, what is the most appropriate mix under the two following assumptions? Marks = 25 ASSIGNMENT NO. 9 Q.1. Name the two basic categories of cost of holding inventory and also explain the benefit of holding inventory. Marks = 25 Q.2. Explain nature of working capital and also explain the concept and definition of working capital. Marks = 25 Q.3. A cost sheet of a company provides the following particulars; Element of Cost Amount per unit Raw Materials 80 Direct Labour 30 Overhead 60 Total cost 170 Profit 30 Selling price 200 The following further particulars are available; Raw materials in stock, on average, one month; materials in process (completion stage, 50%), on average half a month; finished goods in stock, on average, one month. Credit allowed by supplier is one month; credit allowed to debtors is two months; average time lag in payments of wages is 1.5 weeks and one month in overhead expenses; one fourth of the output is sold against cash; cash in hand and at bank is desired to be maintained at Rs.365,000. You are required to prepare a statement showing the working capital needed to finance a level of activity of 104,000 units of production. You may assume that production is carried on evenly throughout the year and wages and overhead accrue similarly. Marks = 25 Q.4. From the following projections of XYZ & Ltd. for the next year, you are required to determine the working capital required by the company. Annual sales Rs.1,440,000 Cost of production (including depreciation of Rs.120,000) Rs.1,200,000 Raw Material purchase Rs.705,000 Monthly expenditures Rs.30,000 Estimated opening stock of raw materials Rs.140,000 Estimated closing stock of raw material Rs.125,000 Inventory norms; Raw Materials 2 months

11 Work in process ½ months Finished goods 1 month The firm enjoys a credit of half a month on its purchases and allows one month credit on its supplies. On sales orders the company receives an advance of Rs.15,000. You may assume that production is carried out evenly throughout the year and minimum cash balance desired to be maintained is Rs.35,000. Marks = 25 ASSIGNMENT NO. 10 Q.1. The following results are expected by XYZ Ltd by quarters next year, in thousands of rupees (000). Quarters Sales 7,500 10,500 18,000 10,500 Cash payments; Production costs 7,000 10,000 8,000 8,500 Selling, admin cost 1,000 2,000 2,900 1,600 Purchases of fixed assets 100 1,100 2,100 2,100 The debtors at the end of a quarter are one third of sales for the quarter. The opening balance of debtors is Rs.3,000,000. Cash on hand at the beginning of the year is Rs.650,000 and the desired minimum balance is Rs.500,000. Borrowings are made at the beginning of quarters in which the need will occur in multiplies of Rs.10,000 and are repaid at the end of quarters. Interest charges may be ignored. You are required to prepare; Marks = 25 (a) A cash budget by quarters for the year, and (b) State the amount of loan outstanding at the end of the year. Q.2. The following data pertain to a shop. The owner has made the following sales forecasts for the first 5 months of the coming year; January Rs. 40,000 February 45,000 March 55,000 April 60,000 May 50,000 Other data are as follows; (a) Debtors and creditors balances at the beginning of the year are Rs.30,000 and Rs.14,000 respectively. The balances of other relevant assets and liabilities are; Cash balance Rs. 7,500 Stock 51,000 Accrued sales commission 3,500 (b) (c) (d) (e) (f) (g) 40 percent sales are on cash basis. Credit sales are collected in the month following sale. Cost of sales is 60 percent of sales The only other variable cost is a 5 percent commission to sales agents. The sales commission is paid in month after it is earned. Inventory (stock) is kept equal to sales requirements for the next two months budgeted sales. Trade creditors are paid in the following month after purchase. Fixed cost are Rs.5,000 per month, including Rs.2,000 depreciation. You are required to prepare a cash budget for each of the first three months of coming year. Marks = 25 Q.3. Easy Limited specializes in the manufacture of a computer component. The component is currently sold for Rs.1,000 and its variable cost is Rs.800. For the current year ended December 31, the company sold on an average 400 components per month. Marks = 25

12 At present, the company grants on month s credit to its customers. It is thinking of extending the same to two months on account of which the following are expected. Increase in sales, 25 percent Increase in stock, Rs.200,000 Increase in creditors, Rs.100,000 You are required to advise the company on whether or not to extend terms if (a) all customers avail of the extended credit period of two months and (b) existing customers do not avail of the credit terms but only the new customers avail of the same. Assume the entire increase in sales is attributable to the new customers. Q.4 The Company expects a minimum return of 40 percent on the investments. (a) The following details are available in respect of a firm; Marks = 12 Annual requirement of inventory, 40,000 units Cost per unit (other than carrying and ordering cost), Rs.16. Carrying costs are likely to be 15 percent per year Cost of placing order, Rs.480 per order Determine the economic order quantity (b) Economic enterprises require 90,000 units of certain items annually. The cost per unit is Rs.3. the cost per purchase order is Rs.300 and the inventory carrying cost is Rs.6 per unit per year. (1) What is EOQ? (2) What should be the firm do if the suppliers offer discount as detailed below; Order quantity 4, , Discount 2 percent Order quantity 6,000 and above -- Discount 3 percent Marks = 13