Economic order quantity, Business Economics

A manufacturing company has determined from an analysis of its accounting and production data for a certain part that :
a. Its demand is 9000 units per annum and is uniformly distributed over the year,
b. Its ordering cost is RS. 40 per order,
c. The inventory carrying charge is 0 percent of the inventory value.

Further it is known that the lead time is uniform and equals 8 working days and that total working days in a year are300.

Determine :

1. The economic order quantity EOQ :

2. The optimum number of orders per annum:

3. The total ordering and holding cost associated with the policy of ordering and amount equal to EOQ.

4. The re order level.

5. The number of days stock at re orders level.

6. The length of the inventory cycle.

7. The amount to savings that would b possible by sitching to the policy of ordering EOQ determined in ( i) from the present policy of ordering the requirements of this part thrice a year and .

8. The increase in the total cost associated with ordering ( a) 20 percent more ( b) 40 percent less than the EOQ.

Solution:

We are given that s = 9000 units / year Rs. 40order , I = 0.09 c, = Rs 2 unit
H = i x c = 0.09 x 2 = 0.18
Also lead time 8 working days and total working days in the year = 300 .

1. EOQ Q * = 2AD / 2 = 2x 40 xx 9000x/x0.18 = 2000 units

2. Optimum number of orders per year , N = D / Q * = 9000/2000= 4.5

3. Total variable cost T ( Q * ) = 2ADh = 2x 40x 9000x 0.18x= Rs. 360

4. Te order level = lead time in days x demand per day
= 8 x 9000/ 300 = 240 units.

5. Number of days stock at the re order level = 8 ( equal to lead time )

6. Length of inventory cycle T *= Q * / D = 2000/ 9000= 0.222year or 0.222 x 3000= 66.7days

Alternatively T * ( in days ) Q * demand per day = 2000/ 30 = 66.7 days

7. For the present policy of an order quantity = 3000 units.

Ordering cost = 40x 3 = Rs. 120

Holing cost = 3000/ 2 x 0.18 = Rs. 270

T 3000= 120+270= Rs 390

Thus saving in cost = Rs 390 - Rs 360 = Rs. 30 per year.

8. Ordering 20% higher than EOQ:

Ordering quantity = 120/ 100= 2400 units

With Q * = 2000 and Q = 2400 k = 2400/ 2000= 1.2

We have T (Q)/ T (Q*) = 1 / 2 ( 1/ K + k ) ( 1/ 1.2+ 1.2 ) = 61/ 60

Thus the cost would increase by 1/ 60 the or 360 x 1/ 60 = Rs. 6

Ordering 40 % lower than EOQ :

In such a situation k = 0.60 and T (Q) / T (Q*) = 1/ 2 ( 1/0.60+ 0.60) = 17/15

Thus the increase in cost would be 2 / 15 over the cost for EOQ and would equal 360 x 2 / 15 = RS 48 .

Posted Date: 3/1/2013 2:24:11 AM | Location : United States







Related Discussions:- Economic order quantity, Assignment Help, Ask Question on Economic order quantity, Get Answer, Expert's Help, Economic order quantity Discussions

Write discussion on Economic order quantity
Your posts are moderated
Related Questions
What are the restrictions of dependency theory? The restrictions of dependency theory: • Self sufficiency and import-substitution strategy mean the advantages of Internatio

I want to do few projects on this topic.

What are Rostowís limitations? • Presently LDCs face much various conditions than DCs into the 19th century the origin of Rostowís studies • LDCs are very same but very dif

Explain why Caerphilly are considering this model of service provision Examine the costs and benefits of joining the shared service model. Your answer should cons

The factors that affect the volume of production in economics

how get atmosphere pollution and its solution

2. You recommend spending $10,000 on equipment that will increase sales of your product by $1000 a year and reduce annual operating costs by $800. The equipment has 10-year lifetim


The Scenario You have just been appointed as the procurement consultant for a large multinational with operations based in Brisbane. Your superior, the Chief Financial Officer (