Solved answers of Inventory Quantity Standards
Problem 4:
The ABC Company
provides the following information:
Estimated
requirements for next year: 2400 units
Per unit Cost:
Rs. 150
Ordering Cost
(Per order): Rs. 20
Carrying Cost:
10%
From the above
information you are required to calculate:
(a) Economic
Order Quantity
(b) The Number
of orders to be placed per year
(c) The
Frequency of orders
(d) Prove your
answer
Solution:
* From the above
table, it is clear that if 3 orders are placed per year according to the
Economic Order Quantity of 800 units per order; then the total cost (carrying +
order cost) comes to Rs. 120 which is the lowest of all other different
combinations. Hence it is proved that the most Economic Order Quantity is 800
units.
Note: When 800
units (EOQ) are purchased the ordering costs and carrying costs are equal.
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