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A company operate 200 days in year and consume 900 kg of raw materials per day which cost 5 per kg .The ordering cost per order is 150 and carrying cost is 0.50 per kg per month of average inventory. Determine the eoq and the total inventory cost.the company offered a 2% discount in purchase price for order of 6000kg or more but less than 12000kgs .Which of the two ways of purchase comapny should adopt .?
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A company operate 200 days in year and consume 900 kg of raw materials...
Calculation of EOQ and Total Inventory Cost
- Annual Demand (D) = 200 days/year x 900 kg/day = 180,000 kg
- Ordering Cost (S) = $150
- Carrying Cost (H) = $0.50/kg/month x 12 months/year = $6/year
- Cost per Unit (C) = $5/kg
Using the EOQ formula:
EOQ = √[(2DS)/H(C)] = √[(2 x 150 x 180,000)/6 x 5] = 1,341 kg
Total Inventory Cost = (D/Q)S + (Q/2)H(C) = (180,000/1,341) x 150 + (1,341/2) x 6 x 5 = $20,060.75
Comparison of Purchase Options
The company consumes 900 kg of raw materials per day, which means that it will reach the minimum order quantity of 6,000 kg in 6.67 days. Therefore, the company can take advantage of the discount offer by placing an order for 6,000 kg or more.
If the company places an order of 6,000 kg, the cost of purchase will be:
Cost of Purchase = 6,000 x $5 x (1-2%) = $28,800
The total ordering cost will be:
Total Ordering Cost = 1 x $150 = $150
The carrying cost will be:
Carrying Cost = (6,000/2) x $0.50 x 12/12 = $1,500
Total Inventory Cost = Total Ordering Cost + Carrying Cost + Cost of Purchase = $150 + $1,500 + $28,800 = $30,450
If the company places an order of EOQ, the cost of purchase will be:
Cost of Purchase = 1,341 x $5 = $6,705
The total ordering cost will be:
Total Ordering Cost = (180,000/1,341) x $150 = $2,010
The carrying cost will be:
Carrying Cost = (1,341/2) x $0.50 x 12/12 = $335.25
Total Inventory Cost = Total Ordering Cost + Carrying Cost + Cost of Purchase = $2,010 + $335.25 + $6,705 = $9,050.25
Conclusion
Comparing the two options, it is clear that the company should adopt the strategy of purchasing 6,000 kg or more to take advantage of the discount offer. The total inventory cost when purchasing EOQ is significantly lower, but the savings are not enough to justify the opportunity cost of not taking advantage of the discount offer.
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A company operate 200 days in year and consume 900 kg of raw materials per day which cost 5 per kg .The ordering cost per order is 150 and carrying cost is 0.50 per kg per month of average inventory. Determine the eoq and the total inventory cost.the company offered a 2% discount in purchase price for order of 6000kg or more but less than 12000kgs .Which of the two ways of purchase comapny should adopt .?
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A company operate 200 days in year and consume 900 kg of raw materials per day which cost 5 per kg .The ordering cost per order is 150 and carrying cost is 0.50 per kg per month of average inventory. Determine the eoq and the total inventory cost.the company offered a 2% discount in purchase price for order of 6000kg or more but less than 12000kgs .Which of the two ways of purchase comapny should adopt .? 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 A company operate 200 days in year and consume 900 kg of raw materials per day which cost 5 per kg .The ordering cost per order is 150 and carrying cost is 0.50 per kg per month of average inventory. Determine the eoq and the total inventory cost.the company offered a 2% discount in purchase price for order of 6000kg or more but less than 12000kgs .Which of the two ways of purchase comapny should adopt .? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A company operate 200 days in year and consume 900 kg of raw materials per day which cost 5 per kg .The ordering cost per order is 150 and carrying cost is 0.50 per kg per month of average inventory. Determine the eoq and the total inventory cost.the company offered a 2% discount in purchase price for order of 6000kg or more but less than 12000kgs .Which of the two ways of purchase comapny should adopt .?.
A company operate 200 days in year and consume 900 kg of raw materials per day which cost 5 per kg .The ordering cost per order is 150 and carrying cost is 0.50 per kg per month of average inventory. Determine the eoq and the total inventory cost.the company offered a 2% discount in purchase price for order of 6000kg or more but less than 12000kgs .Which of the two ways of purchase comapny should adopt .? 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 A company operate 200 days in year and consume 900 kg of raw materials per day which cost 5 per kg .The ordering cost per order is 150 and carrying cost is 0.50 per kg per month of average inventory. Determine the eoq and the total inventory cost.the company offered a 2% discount in purchase price for order of 6000kg or more but less than 12000kgs .Which of the two ways of purchase comapny should adopt .? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A company operate 200 days in year and consume 900 kg of raw materials per day which cost 5 per kg .The ordering cost per order is 150 and carrying cost is 0.50 per kg per month of average inventory. Determine the eoq and the total inventory cost.the company offered a 2% discount in purchase price for order of 6000kg or more but less than 12000kgs .Which of the two ways of purchase comapny should adopt .?.
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