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I am stuck here can you please explain me the way to solve this?
A company is planning to purchase 90,800 units of a particular itemin the year ahead. The item is purchased in boxes each containing 10units of the item, at a price of $200 per box. A safety inventory of 250boxes is kept.
The cost of holding an item in inventory for a year (includinginsurance, interest and space costs) is 15% of the purchase price. Thecost of placing and receiving orders is to be estimated from cost datacollected relating to similar orders, where costs of $5,910 wereincurred on 30 orders. It should be assumed that ordering costs changein proportion to the number of orders placed. 2% should be added to theabove ordering costs to allow for inflation. Assume that usage of theitem will be even over the year.
You do not say what the question is!
I assume that it is asking for the economic order quantity.
If so, then you use the EOQ formula.
D = 90,800 / 10 = 9,080 boxes
Co = 5910/30 = 197 + (2% x 197) = 200.94
Ch = 15% x 200 = 30I know this question. It’s been taken from the Kaplan Study text for F2
The question goes on to ask:
The order quantity which minimises total costs is [ ] boxes
This will mean ordering the item every [ ] weeksWhat I did was as follows:
If so, then you use the EOQ formula.
D = 90,800 / 10 = 9,080 boxes
Co = 5910/30 = 197 + (2% x 197) = 200.94
Ch = 15% x 200 = 30EOQ= 2x (200.94 x 90,800 / 10) / $30
=348.763 = rounded to 349 boxes9080 boxes / 349 boxes = 26 orders per annum
52 weeks (per annum) / 26 orders per annum = 2 weeks per order
so order the item every 2 weeks
kirit: Please do not answer in this forum – it is the Ask the Tutor Forum, and you are not the tutor. (But please do help people in the other Paper F2 forum 🙂 )
(And I do not know why you retyped what I wrote earlier – I am sure asikka is capable of completing the question himself/herself based on the help I gave in my reply. He/she asked how to approach it – not for a complete answer.)
Many thanks all of you for the prompt reply. I was getting confused with the per unit and boxes. But this is more clear now.
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