Question

The production department of a company requires 3600 kg of raw materials for manufacturing a particular item per year. it has been estimated that the cost of placing an order is 36 and the cost of carrying inventory is 25 percent of the investment in the inventories. the price is 10. purchaser manager wishes to determine an ordering policy for raw materials. find optimal reorder time solution

Answer 1

Answer:

EOQ is 322 units..........

Explanation:

Annual usage = 3600 kg (A)

Ordering Cost = 36 (S)

Carrying Cost = 25% of 10 = 2.5 (I)

EOQ = Square root of 2AS / I

2*3600*36/2.5 square root = 322 units

Answer 2

Concept :

Economic Order Quantity - The economic order quantity (EOQ) is the amount of inventory that a company should order in order to keep its overall ordering, receiving, and holding costs as low as possible.

It is Calculated as:

EOQ = square root of (2DS / H)

where,

D=Demand in units (typically on an annual basis)

S=Order cost (per purchase order)

H=Holding costs (per unit, per year)

Economic Order Time - It is calculated as follows

EOT = 365/no. of orders

Given:

• D = 3600
• S = 36
• H = 0.25 X 10 = 2.5

Find: Economic order time

Solution:

EOQ = square root of ( 2x3600x36/2.5)

EOQ = 322 units

No. of orders = 3600/ 322 =11 orders

EOT = 365/ 11

EOT = 33 days

Hence, we can conclude that the optimal reorder time is 33 days.

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