a company manufactures a special product which requires a component "alpha". The following particuars are colllected for the year 2008. 1} annual demand of alpha 8000 units 2} cost of placing an order rs 200 per order 3} cost per unit of alpha rs 400 4] carrying cost % p.a. 20% the company has been offered a quantity discount of 4 % on the purchase of alpha provided the order size is 4000 components at a time compute EOQ advise whether the quantity discount offer can be accepted
Answers
Answer:
Explanation:
(a) Calculation of Economic Order Quantity
EOQ= √2AB/CS
Where;
A = annual consumption,
B = buying cost per order,
C = cost per unit, and
S = storage and carrying cost
√2 ×8,000 units× Rs.200/Rs.400× 20/100
= 200 units
(b) Evaluation of Profitability of Different Options of Order Quantity
(1) When EOQ is ordered (Rs.)
Purchase Cost (8,000 units × Rs 400) =32,00,000
Ordering Cost [(8,000 units/200 units) × Rs.200] = 8,000
Carrying Cost (200 units × Rs.400 × 1/2 ×20/100) = 8,000
Total Cost = 32,16,000.
(2) When Quantity Discount is accepted (Rs.)
Purchase Cost (8,000 units × Rs.384) = 30,72,000
Ordering Cost [(8,000 units/4000 units) × Rs.200] = 400
Carrying Cost (4000 units × Rs.384 × 1/2 ×20/100)= 1,53,600
Total Cost = 32,26,000