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A materials manager adopts the policy to place an order for a minimum quantity of 500 of a particular item in order to avail a discount of 10%. It was found from the company records that for last year 8 orders were placed each of size 200 Nos. Ordering cost is Rs. 500 per order. Inventory carrying charges at 40% cost per unit = Rs. 400. Is the purchase manager justified in his decision? What is the effect of this decision on the company?

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