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Umoja Club uses 10,000 cases of special sorghum beer monthly. One case costs Sh. 5,000. Holding cost is 30% of the cost of a

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Answer #1

a)

EOQ=square root of ((2*Annual Demand*Order cost)/Holding cost)

EOQ= square root of ((2*10000*12*100000)/(0.30*5000))

EOQ= square root of 16000000

EOQ=4000

b)

Number of Order=(10000*12)/4000

Number of Order=30

Days between the order=360 days/30=12 Days

c)

Reorder level=average daily demand*Lead time=(10000*12)/360)*6

Reorder level=2000

d)

Total cost of optimal inventory policy=Order cost + holding cost + purchase cost

Total cost of optimal inventory policy=(30*100000)+((4000/2)*(0.30*5000))+(5000*10000*12)=606000000

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