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Ecost Week07 Assignment

The document contains three problems related to calculating economic order quantities and inventory levels. Problem 1 calculates the EOQ of 400 units for a company that buys a material for P20 per unit and needs 16,000 units per year. Problem 2 calculates the EOQ of 283 units for a company with an annual demand of 60,000 units and ordering cost of P800. Problem 3 calculates safety stock, order point, normal maximum inventory, and absolute maximum inventory for a company with a lead time of 5 days and daily usage ranging from 100 to 600 units.

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111 views2 pages

Ecost Week07 Assignment

The document contains three problems related to calculating economic order quantities and inventory levels. Problem 1 calculates the EOQ of 400 units for a company that buys a material for P20 per unit and needs 16,000 units per year. Problem 2 calculates the EOQ of 283 units for a company with an annual demand of 60,000 units and ordering cost of P800. Problem 3 calculates safety stock, order point, normal maximum inventory, and absolute maximum inventory for a company with a lead time of 5 days and daily usage ranging from 100 to 600 units.

Uploaded by

music ni
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Problem 1

Olive Corporation buys a material for P20 per unit. Sixteen thousand parts a year are needed. Carrying cost is P3.00
per unit and the ordering cost is PI5.

Required:
a. Compute the economic order quantity.
b. Prepare a tabular analysis to compute the total costs assuming the following order sizes: 100 units. 200 units, 400
units, 1,600 units and 6,400 units The table should have the following columns: order size, number of orders, cost
per order, total ordering costs, average inventory, carrying cost per unit, total carrying costs, and total costs.
A. EOQ = √ 2 x 16,000 x 15
P3
= √ 480,000
P3
= √ 160,000
= 400 units

B. Ordering costs Carrying costs


Order No. of Cost Ordering Average Carrying
size orders per order costs Inventory CCPU cost Total Cost
6,400 2.5 P 15 P 37.50 3,200 P3 P9,600 P 9,637.50
1,600 10 15 150.00 800 3 2,400 2,550.00
400 40 15 600.00 200 3 600 1,200.00
200 80 15 1,200.00 100 3 300 1,500.00
100 160 15 2,400.00 50 3 150 2,550.00

No. of Orders = Annual demand / Order size


Average inventory = Order size / 2

This study source was downloaded by 100000842702475 from CourseHero.com on 04-18-2022 23:16:13 GMT -05:00

https://www.coursehero.com/file/81174809/eCost-Week07-Assignmentdocx/
Problem 2
The following relates to The Raindrops Company for the current year Assume that the units will be required evenly
throughout the year.
Units required per year 60,000
Cost of placing an order P800
Cost of earning cost per year P 1,200

Required: What is the EOQ?

EOQ = √ 2 x 60,000 x 800


1200
= √ 96,000,000
1200
= √ 80,000
= 283 units or 282.84

Problem 3
The Nicole Company has obtained the following costs and other data pertaining material X.
Order quantity 3,500 units
Normal use per day 500 units
Maximum use per day 600 units
Minimum use per day 100 units
Lead time 5 days

Required Compute the following


1. Safety stock (maximum)
2. Order point
3. Normal maximum inventory'
4. Absolute maximum inventory

1. Safety stock (5 days x 100 units) 500 units


Maximum use per day 600
Normal use per day (500)
Safety Stock (Maximum) 100 units x 5 days lead time = 500 units

2. Reorder point (5 days x 600 units) 3,000 units


Normal use per day x days of lead time (500 x 5) 2,500
Safety Stock 500
Order Point 3,000 units

3. Normal maximum inventory 4,000 units


Order point 3,000
Normal use during lead time (500 x 5) (2,500)
On hand at time order received 500
Quantity ordered 3,500
Normal maximum inventory 4,000 units

4. Absolute maximum inventory 6,000 units


Order point 3,000
Minimum use during lead time (100 x 5) (500)
On hand at time order received 2,500
Quantity ordered 3,500
Absolute maximum inventory 6,000 units
This study source was downloaded by 100000842702475 from CourseHero.com on 04-18-2022 23:16:13 GMT -05:00

https://www.coursehero.com/file/81174809/eCost-Week07-Assignmentdocx/
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