Question Five Pink Ltd. sells a Product Exe with sales occurring evenly throughout the year. The annual demand for Product Exe is 30,000 units and an order for new inventory is placed each month. Each order costs KES 4,000 to place. The cost of holding Product Exe in inventory is KES 15 per unit per year. Buffer (safety) inventory equal to 40% of one month’s sales is maintained.
Required: Calculate the following values for Product Exe:
i. The total cost of the current ordering policy.
ii. The total cost of an ordering policy using the economic order quantity.
iii. The net cost or saving of introducing an ordering policy using the economic order quantity.
A.
Number of orders per year = 12
Ordering cost = Number of orders*order placing cost
12*4000
48000
Safety stock = 40% of Monthly sales
So Safety stock = 30000/12*40%= 1000
Order Quantity = Annual demand/Number of orde
30000/12= 2500
Average Inventory = Safety stock +(order quantity/2)
1000+(2500/2)
2250
Annual holding costs = holding cost per unit * Average
Inventory
15*2250
33750
Total cost = Annual order cost + annual holding cost
48000+33750= 81750
So Total cost of Current ordering policy is
81750
B
Annual usage (A)= 30000 units
Ordering cost (o)= kes 4000
Annual carrying cost (C)= kes 15
Economic order quantity (EOQ) = √(2*A*O/C)
√((2*30000*4000)/15)
4000
So EOQ quantity is 4000 units.
Number of orders per year = 30000/4000=
8
Ordering cost = Number of orders*order placing cost
8*4000
32000
Safety stock = 40% of Monthly sales
So Safety stock = 30000/12*40%= 1000
Average Inventory = Safety stock +(order quantity/2)
1000+(4000/2)
3000
Annual holding costs = holding cost per unit * Average
Inventory
15*3000
45000
Total cost = Annual order cost + annual holding cost
32000+45000= 77000
So Total cost of EOQ ordering policy is
77000
c
EOQ Quantity has less cost.
Saving = cost of Current policy - Cost of EOQ policy
81750-77000
4750
So net Savings due to choosing EOQ is 4750 kes
please thumbs up
Question Five Pink Ltd. sells a Product Exe with sales occurring evenly throughout the year. The...
Kamal Corporation sells 60,000 iPhone covers each year. These covers are sold evenly throughout the year. Ordering costs are $280 per order, and carrying costs are $2.10 per unit per year. Read the requirements Requirement 1. What is the economic order quantity (EOQ) for ordering the covers? Begin by selecting the formula used to calculate EoQ. (D Demand in units for one year, P Ordering cost per purchase order, C Carrying cost of one unit in stock, Q -Any order...
SS LIMITED Inventory Cost Management Annual Holding Cost / unit Total Holding Cost / Buffer Stock Total Holding Cost / Orders Fixed Cost / order Total Ordering Cost / Orders Total Cost Saving by Economic Order Quantity Annual Consumption, units 1,800,000 £1.50 £37.50 Quantity per Order, units 50,000 £42,000.00 £37,500.00 £1,350.00 £80,850.00 Economic Order Quantity, units 9,487 £42,000.00 £7,115.25 £7,115.00 £56,230.25 £24,619.75 Buffer Stock, units 28,000 Weekly Demand, units 36,000 Lead Time, weeks 2...
Lethal Co sells a particular product for which it pays $6 per unit. Annual sales are 60,000 units and demand 1 accrues evenly throughout the year. The cost of ordering the product is $15 per order and the inventory cost of holding one unit of the product for one year is $3. It is Lethal Co's policy to have an order quantity of 1,200. What is the total annual cost to the business of trading in this product? A $360,750...
Diagnostic Supplies has expected sales of 72,900 units per year, carrying costs of $4 per unit, and an ordering cost of $8 per order. a. What is the economic ordering quantity? Economic ordering quantity units b-1. What is the average inventory? Average inventory units b-2. What is the total carrying cost? Total carrying cost Assume an additional 60 units of inventory will be required as safety stock. c-1. What will the new average inventory be? Average inventory units c-2. What...
Diagnostic Supplies has expected sales of 84,100 units per year, carrying costs of $5 per unit, and an ordering cost of $10 per order. a. What is the economic ordering quantity? Economic ordering quantity units b-1. What is the average inventory? Average inventory units b-2. What is the total carrying cost? Total carrying cost $ Assume an additional 80 units of inventory will be required as safety stock. c-1. What will the...
Che Problem 7-15 Economic ordering quantity with safety stock [LO7-5] Diagnostic Supplies has expected sales of 84100 units per year, carrying costs of $5 per unit, and an ordering cost of $10 per order a. What is the economic ordering quantity? Ec b-1. What is the average inventory? b-2. What is the total carrying cost? < Prey 15 of 16 Next>
Diagnostic Supplies has expected sales of 162,000 units per year, carrying costs of $2 per unit, and an ordering cost of $5 per order. a. What is the economic ordering quantity? b-1. What is the average inventory? b-2. What is the total carrying cost? Assume an additional 100 units of inventory will be required as safety stock. c-1. What will the new average inventory be? c-2. What will the new total carrying...
Diagnostic Supplies has expected sales of 176,400 units per year, carrying costs of $2 per unit, and an ordering cost of $4 per order. a. What is the economic ordering quantity? b-1. What is the average inventory? b-2. What is the total carrying cost? Assume an additional 70 units of inventory will be required as safety stock. c-1. What will the new average inventory be? c-2. What will the new total carrying cost be?
Economic Order Quantity Ottis, Inc., uses 656,100 plastic housing units each year in its production of paper shredders. The cost of placing an order is $24. The cost of holding one unit of inventory for one year is $12. Currently, Ottis places 162 orders of 4,050 plastic housing units per year. Required: 1. Compute the economic order quantity. X units 2. Compute the ordering, carrying, and total costs for the EOQ. Ordering cost $ X Carrying cost Total cost 3....
Ollah's Organic Pet Shop sells about 5,000 bags of free-range dog biscuits every year. The fixed ordering cost is $11, and the cost of holding a bag in inventory for a year is $3.00. Click the icon to view the table of z values. a. What is the economic order quantity for the biscuits? The EOQ is (Enter your response rounded to the nearest whole number) b. Suppose Ollah decides to order 260 bags at a time. What would the...