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A manufacturing company has a contract to supply 5000 components to an automobile company per day. The manufacturing capacity of the company is 7000 components per day. The carrying cost of 1000 components is 20 paise per day. The set-up cost is Rs. 20. The total inventory cost per annum on optimum basis is __________
- a)230
- b)1236
Correct answer is between ' 230, 1236'. Can you explain this answer?
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Verified Answer
A manufacturing company has a contract to supply 5000 components to a...
Consumption rate = d = 5000/day
Production rate = k = 7000/day
= 0.073
TC)min = 1233.9
Most Upvoted Answer
A manufacturing company has a contract to supply 5000 components to a...
To find the total inventory cost per annum on the optimum basis, we need to consider the carrying cost, set-up cost, and the production capacity of the manufacturing company.
Carrying Cost Calculation:
The carrying cost is the cost associated with holding inventory. In this case, the carrying cost of 1000 components is given as 20 paise per day. To calculate the carrying cost per annum, we need to multiply this cost by the number of days in a year (365).
Carrying cost per annum = Carrying cost per day * Number of days in a year
= 20 paise * 1000 * 365
= Rs. 7300
Set-up Cost Calculation:
The set-up cost is the cost incurred each time the manufacturing company starts a new production run. In this case, the set-up cost is given as Rs. 20 per set-up.
Total set-up cost per annum = Set-up cost per set-up * Number of set-ups per annum
Now, we need to determine the number of set-ups per annum. Since the manufacturing capacity is 7000 components per day and the automobile company requires 5000 components per day, the manufacturing company needs to produce 5000 components each day to meet the demand. Therefore, the number of set-ups per day is given by:
Number of set-ups per day = Manufacturing capacity / Components required per day
= 7000 / 5000
= 1.4
However, since the number of set-ups cannot be a fraction, we round it up to the nearest whole number. Therefore, the number of set-ups per day is 2.
Number of set-ups per annum = Number of set-ups per day * Number of working days per annum
= 2 * 365
= 730
Total set-up cost per annum = Rs. 20 * 730
= Rs. 14,600
Total Inventory Cost Calculation:
The total inventory cost per annum can be calculated by summing up the carrying cost and the set-up cost.
Total inventory cost per annum = Carrying cost per annum + Total set-up cost per annum
= Rs. 7300 + Rs. 14,600
= Rs. 21,900
Therefore, the total inventory cost per annum on the optimum basis is Rs. 21,900 (option b).
Carrying Cost Calculation:
The carrying cost is the cost associated with holding inventory. In this case, the carrying cost of 1000 components is given as 20 paise per day. To calculate the carrying cost per annum, we need to multiply this cost by the number of days in a year (365).
Carrying cost per annum = Carrying cost per day * Number of days in a year
= 20 paise * 1000 * 365
= Rs. 7300
Set-up Cost Calculation:
The set-up cost is the cost incurred each time the manufacturing company starts a new production run. In this case, the set-up cost is given as Rs. 20 per set-up.
Total set-up cost per annum = Set-up cost per set-up * Number of set-ups per annum
Now, we need to determine the number of set-ups per annum. Since the manufacturing capacity is 7000 components per day and the automobile company requires 5000 components per day, the manufacturing company needs to produce 5000 components each day to meet the demand. Therefore, the number of set-ups per day is given by:
Number of set-ups per day = Manufacturing capacity / Components required per day
= 7000 / 5000
= 1.4
However, since the number of set-ups cannot be a fraction, we round it up to the nearest whole number. Therefore, the number of set-ups per day is 2.
Number of set-ups per annum = Number of set-ups per day * Number of working days per annum
= 2 * 365
= 730
Total set-up cost per annum = Rs. 20 * 730
= Rs. 14,600
Total Inventory Cost Calculation:
The total inventory cost per annum can be calculated by summing up the carrying cost and the set-up cost.
Total inventory cost per annum = Carrying cost per annum + Total set-up cost per annum
= Rs. 7300 + Rs. 14,600
= Rs. 21,900
Therefore, the total inventory cost per annum on the optimum basis is Rs. 21,900 (option b).
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A manufacturing company has a contract to supply 5000 components to an automobile company per day. The manufacturing capacity of the company is 7000 components per day. The carrying cost of 1000 components is 20 paise per day. The set-up cost is Rs. 20. The total inventory cost per annum on optimum basis is __________a) 230b) 1236Correct answer is between ' 230, 1236'. Can you explain this answer?
Question Description
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