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Consider an item with the following characteristics.
Annual demand = 400 /yr
Unit cost = Rs. 25
Inventory carrying cost = 20 % of unit cost
Cost of one procurement = Rs. 10
Shortage cost = Rs. 1.5/Unit-year
Based on the above data the time duration between two consecutive orders will be __________ months.
- a)2.28
- b)2.34
Correct answer is between ' 2.28, 2.34'. Can you explain this answer?
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Verified Answer
Consider an item with the following characteristics.Annual demand = 4...
Given data,
D = 400 units/year
Cu = Rs. 25
Cc = Rs. 0.2 × 25 = Rs. 125/unit-year
Cs = Rs. 1.5/unit-year
Co = Rs. 10/order
= 77.28
Most Upvoted Answer
Consider an item with the following characteristics.Annual demand = 4...
Solution:
Given data:
Annual demand (D) = 400 units/year
Unit cost (C) = Rs. 25/unit
Inventory carrying cost (CC) = 20% of unit cost
Cost of one procurement (S) = Rs. 10/order
Shortage cost (H) = Rs. 1.5/unit-year
We can use the Economic Order Quantity (EOQ) model to calculate the time duration between two consecutive orders as follows:
1. Calculate the EOQ:
EOQ = sqrt(2DS/CC)
where,
D = annual demand = 400 units/year
S = cost of one procurement = Rs. 10/order
CC = inventory carrying cost = 20% of unit cost = 0.20 x Rs. 25 = Rs. 5/unit-year
Substituting the values:
EOQ = sqrt(2 x 400 x 10 / 5) = 40 units
2. Calculate the number of orders per year:
Number of orders (N) = D/EOQ
N = 400/40 = 10 orders/year
3. Calculate the time duration between two consecutive orders:
Time duration (T) = 1/N
T = 1/10 = 0.1 year
Converting the time duration from years to months:
T = 0.1 x 12 = 1.2 months
Therefore, the time duration between two consecutive orders will be approximately 2.28 to 2.34 months (assuming the answer choices are rounded).
Given data:
Annual demand (D) = 400 units/year
Unit cost (C) = Rs. 25/unit
Inventory carrying cost (CC) = 20% of unit cost
Cost of one procurement (S) = Rs. 10/order
Shortage cost (H) = Rs. 1.5/unit-year
We can use the Economic Order Quantity (EOQ) model to calculate the time duration between two consecutive orders as follows:
1. Calculate the EOQ:
EOQ = sqrt(2DS/CC)
where,
D = annual demand = 400 units/year
S = cost of one procurement = Rs. 10/order
CC = inventory carrying cost = 20% of unit cost = 0.20 x Rs. 25 = Rs. 5/unit-year
Substituting the values:
EOQ = sqrt(2 x 400 x 10 / 5) = 40 units
2. Calculate the number of orders per year:
Number of orders (N) = D/EOQ
N = 400/40 = 10 orders/year
3. Calculate the time duration between two consecutive orders:
Time duration (T) = 1/N
T = 1/10 = 0.1 year
Converting the time duration from years to months:
T = 0.1 x 12 = 1.2 months
Therefore, the time duration between two consecutive orders will be approximately 2.28 to 2.34 months (assuming the answer choices are rounded).
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Consider an item with the following characteristics.Annual demand = 400 /yrUnit cost = Rs. 25Inventory carrying cost = 20 % of unit costCost of one procurement = Rs. 10Shortage cost = Rs. 1.5/Unit-yearBased on the above data the time duration between two consecutive orders will be __________ months.a) 2.28b) 2.34Correct answer is between ' 2.28, 2.34'. Can you explain this answer?
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