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The annual demand for an item is 4000 units, ordering cost is Rs. 200 per order and inventory holding cost is given as 8 Rs./unit/year. If 4% is offered for a lot of 1200 units then what will be economical ordering quantity. (Assume unit cost of an item is Rs. 40)
- a)1200
- b)1200
- c)8.5 days
- d)9.5 days
- e)9.5 years
Correct answer is between ' 1200, 1200'. Can you explain this answer?
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Verified Answer
The annual demand for an item is 4000 units, ordering cost is Rs. 200...
Frequency of production run
Given data,
Production rate = 24,000/day
Consumption rate = 12,000/day
CC = Rs. 0.02/unit/year
Co = Rs. 18/set‐ up
Working days = 300
= 113841.99
Annual demand = (12,000 × 300) = 36 × 105
= 9.48
≃ 9.5 days
Most Upvoted Answer
The annual demand for an item is 4000 units, ordering cost is Rs. 200...
To determine the economical ordering quantity, we need to consider the annual demand, ordering cost, inventory holding cost, and the discount offered for a lot purchase.
Given data:
Annual demand (D) = 4000 units
Ordering cost (S) = Rs. 200 per order
Inventory holding cost (H) = Rs. 8 per unit per year
Unit cost of an item (C) = Rs. 40
Discount rate (r) = 4%
Discounted price per unit (C') = C - (C * r) = Rs. 40 - (Rs. 40 * 0.04) = Rs. 38.40
The economic order quantity (EOQ) can be calculated using the formula:
EOQ = √((2DS) / H)
Now let's substitute the given values into the formula:
EOQ = √((2 * 4000 * 200) / 8)
EOQ = √(1600000 / 8)
EOQ = √200000
EOQ = 447.21 (approx.)
Since the economic order quantity should be a whole number, we need to round it up to the nearest whole number.
EOQ = 448 units
Since the discount is offered for a lot of 1200 units, we need to check if ordering 1200 units at a time is more economical.
Total cost of ordering 1200 units:
Ordering cost = Rs. 200
Inventory holding cost = (1200 * Rs. 38.40 * Rs. 8) / 2 = Rs. 184,320
Total cost = Ordering cost + Inventory holding cost
Total cost = Rs. 200 + Rs. 184,320
Total cost = Rs. 184,520
Total cost of ordering 448 units:
Ordering cost = Rs. 200
Inventory holding cost = (448 * Rs. 40 * Rs. 8) / 2 = Rs. 71,680
Total cost = Ordering cost + Inventory holding cost
Total cost = Rs. 200 + Rs. 71,680
Total cost = Rs. 71,880
Comparing the total costs, we can see that ordering 448 units at a time is more economical than ordering 1200 units.
Therefore, the economical ordering quantity is 448 units.
Given data:
Annual demand (D) = 4000 units
Ordering cost (S) = Rs. 200 per order
Inventory holding cost (H) = Rs. 8 per unit per year
Unit cost of an item (C) = Rs. 40
Discount rate (r) = 4%
Discounted price per unit (C') = C - (C * r) = Rs. 40 - (Rs. 40 * 0.04) = Rs. 38.40
The economic order quantity (EOQ) can be calculated using the formula:
EOQ = √((2DS) / H)
Now let's substitute the given values into the formula:
EOQ = √((2 * 4000 * 200) / 8)
EOQ = √(1600000 / 8)
EOQ = √200000
EOQ = 447.21 (approx.)
Since the economic order quantity should be a whole number, we need to round it up to the nearest whole number.
EOQ = 448 units
Since the discount is offered for a lot of 1200 units, we need to check if ordering 1200 units at a time is more economical.
Total cost of ordering 1200 units:
Ordering cost = Rs. 200
Inventory holding cost = (1200 * Rs. 38.40 * Rs. 8) / 2 = Rs. 184,320
Total cost = Ordering cost + Inventory holding cost
Total cost = Rs. 200 + Rs. 184,320
Total cost = Rs. 184,520
Total cost of ordering 448 units:
Ordering cost = Rs. 200
Inventory holding cost = (448 * Rs. 40 * Rs. 8) / 2 = Rs. 71,680
Total cost = Ordering cost + Inventory holding cost
Total cost = Rs. 200 + Rs. 71,680
Total cost = Rs. 71,880
Comparing the total costs, we can see that ordering 448 units at a time is more economical than ordering 1200 units.
Therefore, the economical ordering quantity is 448 units.
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Community Answer
The annual demand for an item is 4000 units, ordering cost is Rs. 200...
Frequency of production run
Given data,
Production rate = 24,000/day
Consumption rate = 12,000/day
CC = Rs. 0.02/unit/year
Co = Rs. 18/set‐ up
Working days = 300
= 113841.99
Annual demand = (12,000 × 300) = 36 × 105
= 9.48
≃ 9.5 days
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The annual demand for an item is 4000 units, ordering cost is Rs. 200 per order and inventory holding cost is given as 8 Rs./unit/year. If 4% is offered for a lot of 1200 units then what will be economical ordering quantity. (Assume unit cost of an item is Rs. 40)a) 1200b) 1200c) 8.5 daysd) 9.5 dayse) 9.5 yearsCorrect answer is between ' 1200, 1200'. Can you explain this answer?
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