Bright Star School purchases an activity box from a local supplier in quantity (D) of 18000...
Bright Star School purchases an activity box from a local supplier in quantity (D) of 18000 boxes per annum. Annual carrying cost (H) is 5 % of the price of box and ordering cost (S) is AED 200 per order. The school is open 250 days a year. The price of each box is AED 220. Apply the Economic Order quantity model of Inventory management and answer the following:
- Determine the optimal number of the items to order in one lot i.e. Economic Order Quantity (EOQ).
- Determine number of orders per year?
- Expected Time between orders?
- Total annual cost (Ordering cost + Holding cost)?
- The supplier is ready to offer a discount of 10 % if a bulk order of 2000 items is given. Analyze whether this discount offer will be beneficial for the company or not.
Homework Answers
EOQ = [ 2 x D xS /Px H]1/2
= [ 2 x 18000 x 200 /220x0.05]1/2
= 809
Number of orders = annual demand / EOQ = 18000/809 = 22.24
Time beteeen orders = Number of days / number of orders = 250/22.24 =11.241
Total cost = ordering cost + holding cost
= 22.24 x200 + 809/2 x11 = 8898
Note : As per Chegg's policy, I am authorised to answer the first four parts of a problem only. Inconvenience is regretted.
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