Question

answer - 832
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ans
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Q-4 (A) The rate list (Price -List) of a Junk Shop Is Given below Answer the following
[03]
question on the basis of price-list:
Rate list
Items
Newspaper
Plastic
Iron
Price Perkg
Rs-5
Rs- 10
Rs-12
(1) What will be the price of 40 kg Newspaper?
(2) What will be the price of 22 kg Plastic -waste?
(3) What will be the price of 12 kg Iron?
(B) Draw the side view of the cap.
[02]​

Answer 1

$\huge\green{Question:}$

JP Limited, manufacturer of a special product follows the policy of EOQ (Economic Order

Quantity) for one of its components. The component's details are as follows:

Purchase Price per Component `200

Cost of an order 100

Annual Cost of Carrying one unit in Inventory 10% of Purchase Price

Total cost of Inventory and Ordering p.a. 4,000

The company has been offered a discount of 2% on the price of the component provided

the lot size is 2,000 components at a time.

You are required to:

(i) Compute the EOQ

(ii) Advise whether the quantity discount offer can be accepted

(Assume that the inventory carrying cost does not vary according to the discount

policy)

(iii) Would your advice differ if the company is offered 5% discount on -a single order?

[4+3+3]

$\huge\red{Answer}$

(i) Formula for EOQ =

Cost per unit x Storage and carrying cost rate

2 x Annual cosumption xBuying cost per order

Purchase price per component `200

Cost of an order `100

Annual cost of carrying one unit in inventory = 10% of purchase price or 10% of `200 = `20

Total cost of carrying inventory and ordering per annum= 200 × 20 = `4,000

Let Annual consumption = S

Therefore:

2S x `100 x(10%of `2,000)

= `4,000

Or

2S x100 x 20

= `4,000; Squaring both sides

Or S = 4,000 units

200 x10%

2 x 4,000units x 100 EOQ `

= 200 units

(ii)When order size is 2,000 units

No. of orders = 4,000 2,000 = 2

Total cost = Ordering cost + Carrying cost = (2 x ` 100) + 1/2 x 2,000 units x ` 20 = 200 + 20,000 =

`20,200

Extra cost = ` 20,200 - ` 4,000 = ` 16,200

Quantity Discount = 2% x 4,000 x ` 200 = ` 16,000

Advice to Management = The quantity discount offered should not be accepted, as it results in

an additional expenditure of ` 200 i.e. ` 16,200 - ` 16,000

(iii) When order size is 4,000 units

No. of order = 1

Total Cost =1 x ` 100 + 1/2 x 4,000 units x ` 20 = ` 40,100

Extra Cost = ` 40,100 - 4,000 = ` 36,100

Quantity discount received = 5% x 4,000 units x ` 200 = ` 40,000

Advice to Management: The quantity discount should be accepted. It will result in reducing the

total cost of carrying and ordering inventory by ` 3,900 i.e. ` 40,000 - ` 36,100.

Note: It is presumed that, total cost of inventory is the total cost of carrying inventory and ordering

per annum.

(b) Discuss the treatment of overti