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I am struggling with calculating the economic ordering quantity for questions that have a discount percentage on the cost of the goods, as well as a percentage holding cost associated with the various costs. For example the following question:
Annual demand = 500
Order Cost = £30
Holding cost = annual rate of 20%
Pricing plan:
0-99 = £36
100-199 = £32
200-399 = £30
400+ = £28How would the EOQ be calcualted for this question?
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Hi Andrew, the question is not very clear, holding cost is anuual rate of 20%, 20% of what? 20% of annual inventory cost ?
yeah, 20% of total anual inventory cost
so using the cost rate of £36 per unit, the annual holding cost would be (36*500)*0.2 = £3,600
My problem is how do you choose which price bracket to use to calculate the holding cost when your trying to figure out the EOQ?
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Calculate the total inventory cost with different price, the quantity in the price plan which results in the lowest total inventory cost is the EOQ.
A wholesaler has an annual demand for dolls of 1,400 units. The cost of typical doll to the wholesaler is kshs 400 if she orders between 100-200units. The carrying cost is estimated to be 20%of the unit price and the ordering cost is kshs 25 per order. If the distributor orders 201-299, she get a2% discount, 300-399 a 5% discount and 400 or more she a 5.5% discount.
1. Determine the EOQ and advice on the best discount.
2. Find the optimal number of orders. How do I go about this.I just wanna ask about this matter:
The formula given for the carrying cost is Cc=Q/2 [C I]
Cc = carrying cost per year
Q= order quantity for materials
C= delivered unit cost
I= inventory carrying cost for the material (expressed as percentage of inv. value)Example:
The production manager disagreed with the purchasing department about the volume of materials to purchase per order. He wants lower volume of 50,000 units against 80,000 units. Carrying cost is 20% of the inventory value. Computed costs for these two sets of volume are as follows:50,000 units:
Cc = 50,000 / 2 [.10 x .2]
= 25,000 x .02
= 500QUESTION: WHERE DOES THE “.10” COME FROM?
Please help me with this one 🙂guys i’m totaly lost in this one. The book im studying uses two methods to find the holding cost. in the example it includes the discounted price to multiply by the average inventory and the rate but, in the exercise it totally ignores the discounted price which ultimately resulted in a different answer than mine so my question is when we calculate the holding cost is it
average inventory(i/2) * (price*discount rate) * the percentage given or is it
average inventory(i/2) * the percentage given ?Have you watched my free lectures on inventory control? They do it the correct way (and explain) 🙂
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A co, estimates that 36000 ring binders will be need next year. the binders have been ordered as needed a procedure which has not proved satisfactory. the cost of binder ordered in 100-units lots or more is $. 1.25 each. the cost department estimates a cost of $ 5.60 to place and process an order. further calculations indicate that it cost about 12% of the average inventory cost to carry the inventory. the purchasing department believes that the practical limits for ordering binders would be max of 45 and min of 10 orders a year.
required
1-EOQ
2- the difference in the most EOQ of the carring cost is 20% of the average inventorykindly help me out
Demand is 150 units per month
The purchase cost per unit is $25
Fixed order cost $32
The holding cost per unit per year is $4.5.Required :
Calculate the minimum total cost assuming the following discount applies:
A discount of 1% is given on orders of 150 and over
A discount of 2% is given on orders of 300 and over
A discount of 4% is given on orders of 800 and over.There is no point in simply writing up full questions and expecting to be provided with a full answer. You must have an answer in the same book in which you found the question, so ask about whatever it is in the answer that you are not clear about.
How to deal with quantity discounts in inventory control is explained in detail in my free lectures. The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
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