A factory requires 1,500 units of an item per month, each costing Rs 27. The cost perorder is Rs 150 and the inventory carrying charges work out to 20 per cent of the average inventory. Findthe economic order quantity and the number of orders per year. Would you accept a 2 per cent discounton a minimum supply quantity of 1,200 units? Compare the total costs in both the cases.
Answers
Step-by-step explanation:
When No Discount is Available
Annual requirement 1500 units x 12 = 18,000 units
EOQ = 2 x u×p/s
2× 18,000x150/
20% of 27
=54,00,000/5.40
=1000000
= 1000 Units
No. of orders per year = 18000 + 1000 = 18 orders
If discount is given (original price - 2% discount)
Cost price $27-0.54 = 26.46
Given:
Units of items required per month = 1500 at Rs.27
Cost of per order= Rs.150
Inventory carrying charges = 20%
To Find:
Quantity and number of orders per year
2% discount on 1200 units
Solution:
When there is no discount
Annual requirement 1500 units = 1500 × 12
= 1800 units
Now,
EOQ =
= ( 20% of Rs.27 is 5.40)
= 10,00,000
Which is, 1000 units.
Number of orders per year = 18000-1000
= 18 orders
If the discount is given:
Original Price - 2% discount
Cost Price = Rs.27 - 0.54
Cost Price = Rs.26.46