Question

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.​

Answer 1

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

Answer 2

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 = $\frac{2*U*P}{5}$

                = $\frac{2*18000*150}{5.40}$   ( 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