1)The production manager has established following about a major inventory items
Purchase price per unit $480
Annual demand 4000
supplier's delivery cost per order $10
chief buyers salary per annum $30000
total number of orders placed per annum 1000 (related to all production line)
annual storage cost per unit $2
cost of capital 10%p.a
What is EOQ for this inventory item
Sir the only thing which I am unable to understand in this part is that while calculating CH, suggested solution have calculated as follows
(480*10% + 2)
I do not understand this. Ch should be 2 in my opinion, but suggested solution differs. Can you please explain
Assume that Company adopts EOQ as its order qty for that item of inventory and that it takes 1 week for an order to be delivered. How much inventory will Co have on hand when the order is placed? Assume 52 weeks in a year
In answer they have done 1/52 multiply by 4000 = 77 units
I do not understand what question is basically asking in it and what and how the solution has came up with an answer. Can you please explain?
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EOQ
8y ago#1Each unit costs $480 to buy, the cost of capital is 10%. Therefore the cost of holding one unit for 1 year (Ch) is 10% x $480 (plus, of course) the $2.
Why have you not watched the free lectures on this??
Since the demand is 4,000 a year, they are selling 4,000/52 per week (because there are 52 weeks in a year).
If it takes 1 week to receive an order then they need to make sure they place an order when they still have enough inventory to cover 1 weeks demand. Otherwise they will run out of inventory and not be able to supply customers.
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