Annual demand 1600 units Carrying Cost ₹ 8 p.u/p.

a Cost per unit

Order cost 100 Per order
Order Quantity No of Orders Ordering cost Avg Qty Carrying cost
1600 1 100 800 6400
800 2 200 400 3200
400 4 400 200 1600
EOQ 200 8 800 100 800
100 16 1600 50 400
80 20 2000 40 320
50 32 3200 25 200

EOQ SQRT(2*A*O)/C) 200 Units

Purchase Cost Total Ordering and carrying cost
80000 6500
80000 3400
80000 2000
80000 1600
80000 2000
80000 2320
80000 3400
Problem 1 CALCULATE the Economic Order Quantity from the following information. Also state the nu
to be placed in a year.

Consumption of materials per annum

Order placing cost per order
Cost per kg. of raw materials
Storage costs
Solution

EOQ
No of Orders

Problem 2 A company uses components at the rate of 500 units per month,
which are bought in at a cost of $1.20 each from the supplier. It costs
$20 each time to place an order, regardless of the quantity ordered
The total holding cost is 20% per annum of the value of inventory
held.
Required
Calculate the EOQ and Total Annual costs

Solution Annual demand 500*12 6000 Units

Ordering cost $20
Purchase cost $1.20
Carrying cost $1.20*20% 0.24

EOQ

Total Annual cost

Problem 4
Annual Demand 500*12 6000 Units
EOQ
1000 Units 2000 Units
Purchase cost
Ordering cost
Holding Cost
Total Annual Cost
mation. Also state the number of orders Problem:
3

10000 Kg
₹ 50
₹ 2.00
8%

Annual Requirement
No.of Boxes
Safety Inventory
Holding Cost(Ch)
Ordering cost
EOQ

Total Annual Costs

TAC

Problem: 5
ii)
Requirement
oxes
nventory
200*15%

SQRT(2AO/C)

TAC 0
Problem: 1
Problem 1 Two components, A and B are used as follows:
Normal usage 50 per week each
Maximum usage 75 per week each
Minimum usage 25 per week each
Re-order quantity A: 300; B: 500
Re-order period A: 4 to 6 weeks
B: 2 to 4 weeks
CALCULATE for each component (a) Re-ordering level,
(b) Minimum level, (c) Maximum level, (d) Average
stock level.

Material A
Reordering Level Maximum Usage X Maximum Time
Minimum Level ROL- (Normal Usage X Normal Time)
Maximum Level ROL+ROQ-(Minimum Usage X Minimum Time)
Average Stock Level (Maximum Level + Minimum level)/2

Problem:3

Maximum Consumption 2000

Maximum lead time 15
Reorder level 30000

Average consumption 1500

Average lead time 10
Minimum stock level 15000
Annual requirement 500000
Ordering cost 4000
Carrying cost 10
EOQ 20000

Minimum consumption 1000

Minimum lead time 5
Maximum stock level 45000

Average consumption 1500

Lead time emergency 4
Danger level 6000

Average Stock level 30000

Average Stock level 30000
 Problem 2 Z Ltd Provides the following information in respect of material-R
Supply period 5 to 15 Days
Rate of Consumption
Average 15 Units per day
Maximum 20 Units per day
Yearly 5000 units
Ordering costs are Rs.20 per order
Purchase price per units Rs.50
Storage costs are 10% of unit value
Compute
i) Re-order level
ii) Minimum Level
Material B iii) Maximum Level

Maximum Consumption 20
Maximum lead time 15
Reorder level 300

Average consumption 15
Average lead time 10
Minimum stock level 150

Annual requirement 5000

Ordering cost 20
Carrying cost 5
EOQ 200

Minimum consumption 10
Minimium lead time 5
Maximum Stock level 450
(Min+Max)/2
Min+(Reorder/2)
rial-R

Supply days

Supply days

Purchase*10%

Supply days
Calculate the value of Issues and Closing inventory Using
a) FIFO
b) LIFO
c) Weighted Average method

FIFO Method
Receipts Issues Balance
Date Units Unit Cost Total Cost Units Unit Cost Total Cost Units Unit Cost
1-May 300 4.50
2-May 200 4.50 900 100 4.50
7-May 500 4.80 2400 600
13-May 400 4.73 1890 200 4.80
20-May 500 5.00 2500 700
28-May 450 4.91 2210 250 5.00
31-May 250

LIFO method
Receipts Issues Balance
Date Units Unit Cost Total Cost Units Unit Cost Total Cost Units Unit Cost
1-May 300 4.50
2-May 200 4.50 900 100 4.50
7-May 500 4.80 2400 600
13-May 400 4.80 1920 200
20-May 500 5.00 2500 700
28-May 450 5.00 2250 250
31-May 250
 Weighted Average Method
Receipts Issues Balance
Date Units Unit Cost Total Cost Units Unit Cost Total Cost Units
1-May 300
2-May 200 4.50 900 100
7-May 500 4.80 2400 600
13-May 400 4.65 1860 200
20-May 500 5.00 2500 700
28-May 450 4.83 2173.5 250
31-May 250

Balance
Total Cost
1350
450
2850
960
3460
1250
1250

Balance
Total Cost
1350
450
2850
930
3430
1180
1180
 Balance
Unit Cost Total Cost
4.50 1350
4.50 450
4.65 2790
4.65 930
4.83 3377.5
4.83 1206.25
4.83 1206.25
 Qty Cost
1-May Opening 10 2
2-May Receipts 70 2.2
3-May Issue 40
4-May Receipts 50 2.3
5-May Issue 70

LIFO Method
Receipts Issues Balance
Date Units Unit Cost Total Cost Units Unit Cost Total Cost Units
1-May 10
2-May 70 2.2 154 80
3-May 40 2.20 86 40
4-May 50 2.30 115 90
5-May 70 2.27 159 20
5-May 20

FIFO method
Receipts Issues Balance
Date Units Unit Cost Total Cost Units Unit Cost Total Cost Units
1-May 10
2-May 70 2.2 154 80
3-May 40 2.15 86 40
4-May 50 2.3 115 90
5-May 70 2.24 157 20
5-May 20

Weighted Average Method

Receipts Issues Balance
Date Units Unit Cost Total Cost Units Unit Cost Total Cost Units
1-May 10
2-May 70 2.2 154 80
3-May 40 2.10 84 40
4-May 50 2.3 115 90
5-May 70 2.20 154 20
5-May 20
 Balance
Unit Cost Total Cost
2.00 20
174
86
201
42
42

Balance
Unit Cost Total Cost
2.00 20
174
2.20 88
203
2.30 46
46

Balance
Unit Cost Total Cost
2.00 20
2.10 168
2.10 84
2.20 198
2.20 44
2.20 44
Problem An invoice in respect of a consignment of chemicals A and B provides the following
information:
(₹)
Chemical A: 10,000 kgs. at ₹ 10 per kg. 100,000
Chemical B: 8,000 kgs. at ₹ 13 per kg. 104,000
Basic custom duty @ 10% (Credit is not allowed) 20,400
Railway freight 3,840
Total cost 228,240

A shortage of 500 kgs. in chemical A and 320 kgs. in chemical B is noticed due to normal
breakages. You are required to COMPUTE the rate per kg. of each chemical, assuming a
provision of 2% for further deterioration.

Solution Calculation of Effective Quantity of Raw Material

Assignment:1

Assignment: 3
Pan Base (PB) operates a megastore featuring sports merchandise. It uses an EO
decision model to make inventory decisions. It is now considering inventory dec
for its Los Angeles Galaxy soccer jerseys product line. This is a highly popular ite
Data for 2011 are as follows:

Expected annual demand for Galaxy jerseys 10,000

Ordering cost per purchase order $200
Carrying cost per year $ 7 per jersey
Each jersey costs PB $40 and sells for $80. The $7 carrying cost per jersey per y
comprises the required return on investment of $4.80 (12% $40 purchase price)
$2.20 in relevant insurance, handling, and theft-related costs. The purchasing le
is 7 days. PB is open 365 days a year. You are required
1. Calculate the EOQ.
2. Calculate the number of orders that will be placed each year.
 Assignment: 2 Compute EOQ and Total Variable cost of the following
Annual Demand = 5000 Units
Unit price = ₹ 20
Order cost = ₹ 16
Storage rate = 2% per annum
Interest rate = 12% per annum
Obsolescenc
= 6% per annum
e rate
(iI) Determine the total cost that would
result for the items if a new price of ₹
12.80

Assignment: 4
andise. It uses an EOQ
dering inventory decisions
s a highly popular item.

cost per jersey per year

$40 purchase price) plus
s. The purchasing lead time

ear.