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Inventory - Additional Examples

The document contains two problems about calculating economic order quantities and inventory costs. The first problem is about a company that sells 36,000 fruit cakes annually, and calculates the economic order quantity, number of orders, and annual inventory costs. The second problem calculates the economic order quantity, number of orders, and total ordering cost for a company that sells 500 industrial dryers per year.

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29 views4 pages

Inventory - Additional Examples

The document contains two problems about calculating economic order quantities and inventory costs. The first problem is about a company that sells 36,000 fruit cakes annually, and calculates the economic order quantity, number of orders, and annual inventory costs. The second problem calculates the economic order quantity, number of orders, and total ordering cost for a company that sells 500 industrial dryers per year.

Uploaded by

imaholysinner
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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PROBLEM 1

Fruitcake Specialists sells 36,000 fruit cakes annually. Annual


carrying costs are P5 per fruit cake and the ordering costs are
P100 per order. Cost per fruit cake is P200.
1. What is the economic order quantity (EOQ)?
2. How many orders should be placed each year?
3. What is the annual ordering cost?
4. What is the annual carrying cost?
5. What is the total inventory cost?
SOLUTIONS:
1. EOQ = √ [(2 x 36,000 x P100) ÷ 5]
= 1,200 fruit cakes

2. Number of orders = 36,000 ÷ 1,200


= 30 orders per year
PROBLEM 2
The ASV Company sells large industrial dryers that
have an inventory value of P500,000 each. The
company expects to order 500 units during the next
calendar years. Ordering cost is P1,000 per order and
carrying cost is 20% of the value of average inventory.
Find the:
a. Economic order quantity
b. Optimal number of orders per year
c. Total ordering cost per year
SOLUTIONS:
a. EOQ = √(2 x 500 x 1,000)/(500,000 x 20%)
EOQ = √(1,000,000)/(100,000)
EOQ = √10
EOQ = 3.16

b. No. of orders = 500/3.16 = 158.23 orders


c. Ordering costs = 158.23 x 1,000 = P158,230

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