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Pumpkin pump company use about 75,000 valves per year and the usage is fairly constant at 6,250 valves per month. The valves cost Rs. 1.50 per unit when bought in quantities and the carrying cost is estimated to be 20% of average inventory investment on an annual basis. The cost to place an order and process the delivery is Rs. 18. It takes 45 days to receive delivery from the date of order and a safety stock of 3,250 valves is desired.?
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Pumpkin pump company use about 75,000 valves per year and the usage is...
Solution:

Given data:
Annual usage = 75,000 valves
Monthly usage = 6,250 valves
Valve cost = Rs. 1.50 per unit
Carrying cost = 20% of average inventory investment on an annual basis
Order cost = Rs. 18
Lead time = 45 days
Safety stock = 3,250 valves

1. Economic Order Quantity (EOQ) Calculation:
EOQ = √[(2 x Annual usage x Order cost) / Carrying cost per unit]
= √[(2 x 75,000 x 18) / (0.20 x 1.50)]
= √[2,700,000 / 0.30]
= √9,000,000
= 3,000 units

2. Reorder Point (ROP) Calculation:
ROP = (Monthly usage x Lead time) + Safety stock
= (6,250 x 45) + 3,250
= 293,750 valves

3. Total Cost Calculation:
Total cost = (Annual usage / EOQ) x Order cost + (EOQ / 2) x Valve cost + (Annual usage + EOQ / 2) x Carrying cost per unit
= (75,000 / 3,000) x 18 + (3,000 / 2) x 1.50 + (75,000 + 3,000 / 2) x 0.20 x 1.50
= 25 x 18 + 1,500 + 11,625
= Rs. 14,625

4. Order frequency:
Order frequency = Annual usage / EOQ
= 75,000 / 3,000
= 25 orders per year

Conclusion:
Based on the above calculations, Pumpkin pump company should order 3,000 valves at a time, 25 times in a year, with a reorder point of 293,750 valves. This will lead to a total cost of Rs. 14,625 per year.
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Pumpkin pump company use about 75,000 valves per year and the usage is...
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Pumpkin pump company use about 75,000 valves per year and the usage is fairly constant at 6,250 valves per month. The valves cost Rs. 1.50 per unit when bought in quantities and the carrying cost is estimated to be 20% of average inventory investment on an annual basis. The cost to place an order and process the delivery is Rs. 18. It takes 45 days to receive delivery from the date of order and a safety stock of 3,250 valves is desired.?
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Pumpkin pump company use about 75,000 valves per year and the usage is fairly constant at 6,250 valves per month. The valves cost Rs. 1.50 per unit when bought in quantities and the carrying cost is estimated to be 20% of average inventory investment on an annual basis. The cost to place an order and process the delivery is Rs. 18. It takes 45 days to receive delivery from the date of order and a safety stock of 3,250 valves is desired.? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about Pumpkin pump company use about 75,000 valves per year and the usage is fairly constant at 6,250 valves per month. The valves cost Rs. 1.50 per unit when bought in quantities and the carrying cost is estimated to be 20% of average inventory investment on an annual basis. The cost to place an order and process the delivery is Rs. 18. It takes 45 days to receive delivery from the date of order and a safety stock of 3,250 valves is desired.? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Pumpkin pump company use about 75,000 valves per year and the usage is fairly constant at 6,250 valves per month. The valves cost Rs. 1.50 per unit when bought in quantities and the carrying cost is estimated to be 20% of average inventory investment on an annual basis. The cost to place an order and process the delivery is Rs. 18. It takes 45 days to receive delivery from the date of order and a safety stock of 3,250 valves is desired.?.
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