B Com Exam > B Com Questions > 1. The purchase manager of X Ltd. buys its an...
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1. The purchase manager of X Ltd. buys its annual requirement of materials of 36,000 units in six
instalments. Each unit is Rs 1.00 and the ordering cost is Rs 25.00 per order. The stock holding stock is
20% p.a. of unit value. You are required to ascertain (a) What is the annual inventory cost under the
existing inventory policy of the purchase manager? (b) How much money would be saved by
employing the economic order quantity?
instalments. Each unit is Rs 1.00 and the ordering cost is Rs 25.00 per order. The stock holding stock is
20% p.a. of unit value. You are required to ascertain (a) What is the annual inventory cost under the
existing inventory policy of the purchase manager? (b) How much money would be saved by
employing the economic order quantity?
Most Upvoted Answer
1. The purchase manager of X Ltd. buys its annual requirement of mater...
Annual Inventory Cost under existing inventory policy:
To calculate the annual inventory cost under the existing inventory policy, we need to consider the ordering cost, holding cost, and the annual requirement of materials.
Ordering Cost:
The ordering cost is given as Rs 25.00 per order. Since the annual requirement is purchased in six installments, the number of orders placed per year would be 6.
Ordering Cost per year = Ordering Cost per order * Number of orders per year
= Rs 25.00 * 6
= Rs 150.00
Holding Cost:
The holding cost is calculated as a percentage of the unit value. It is given as 20% per annum.
Holding Cost per year = (Holding Cost rate * Unit value) * Annual requirement
= (20% * Rs 1.00) * 36,000
= Rs 7,200.00
Total Annual Inventory Cost:
The total annual inventory cost is the sum of the ordering cost and the holding cost.
Total Annual Inventory Cost = Ordering Cost per year + Holding Cost per year
= Rs 150.00 + Rs 7,200.00
= Rs 7,350.00
Therefore, the annual inventory cost under the existing inventory policy is Rs 7,350.00.
Money saved by employing the Economic Order Quantity (EOQ):
The Economic Order Quantity (EOQ) is the optimal order quantity that minimizes the total inventory cost. By employing the EOQ, the company can save money on ordering and holding costs.
To calculate the EOQ, we need to use the following formula:
EOQ = √((2 * Ordering Cost * Annual Requirement) / Holding Cost)
Substituting the given values:
EOQ = √((2 * Rs 25.00 * 36,000) / (20% * Rs 1.00))
= √(1,800,000 / 0.20)
= √9,000,000
= 3,000 units
Money Saved:
To calculate the money saved by employing the EOQ, we need to compare the total inventory cost under the existing inventory policy with the total inventory cost under the EOQ.
Total Inventory Cost under EOQ = (Ordering Cost per order * Number of orders per year) + (Holding Cost rate * Unit value * EOQ)
= (Rs 25.00 * (36,000 / 3,000)) + (20% * Rs 1.00 * 3,000)
= Rs 300.00 + Rs 600.00
= Rs 900.00
Money Saved = Total Inventory Cost under existing policy - Total Inventory Cost under EOQ
= Rs 7,350.00 - Rs 900.00
= Rs 6,450.00
Therefore, by employing the Economic Order Quantity, the company can save Rs 6,450.00.
To calculate the annual inventory cost under the existing inventory policy, we need to consider the ordering cost, holding cost, and the annual requirement of materials.
Ordering Cost:
The ordering cost is given as Rs 25.00 per order. Since the annual requirement is purchased in six installments, the number of orders placed per year would be 6.
Ordering Cost per year = Ordering Cost per order * Number of orders per year
= Rs 25.00 * 6
= Rs 150.00
Holding Cost:
The holding cost is calculated as a percentage of the unit value. It is given as 20% per annum.
Holding Cost per year = (Holding Cost rate * Unit value) * Annual requirement
= (20% * Rs 1.00) * 36,000
= Rs 7,200.00
Total Annual Inventory Cost:
The total annual inventory cost is the sum of the ordering cost and the holding cost.
Total Annual Inventory Cost = Ordering Cost per year + Holding Cost per year
= Rs 150.00 + Rs 7,200.00
= Rs 7,350.00
Therefore, the annual inventory cost under the existing inventory policy is Rs 7,350.00.
Money saved by employing the Economic Order Quantity (EOQ):
The Economic Order Quantity (EOQ) is the optimal order quantity that minimizes the total inventory cost. By employing the EOQ, the company can save money on ordering and holding costs.
To calculate the EOQ, we need to use the following formula:
EOQ = √((2 * Ordering Cost * Annual Requirement) / Holding Cost)
Substituting the given values:
EOQ = √((2 * Rs 25.00 * 36,000) / (20% * Rs 1.00))
= √(1,800,000 / 0.20)
= √9,000,000
= 3,000 units
Money Saved:
To calculate the money saved by employing the EOQ, we need to compare the total inventory cost under the existing inventory policy with the total inventory cost under the EOQ.
Total Inventory Cost under EOQ = (Ordering Cost per order * Number of orders per year) + (Holding Cost rate * Unit value * EOQ)
= (Rs 25.00 * (36,000 / 3,000)) + (20% * Rs 1.00 * 3,000)
= Rs 300.00 + Rs 600.00
= Rs 900.00
Money Saved = Total Inventory Cost under existing policy - Total Inventory Cost under EOQ
= Rs 7,350.00 - Rs 900.00
= Rs 6,450.00
Therefore, by employing the Economic Order Quantity, the company can save Rs 6,450.00.
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1. The purchase manager of X Ltd. buys its annual requirement of materials of 36,000 units in sixinstalments. Each unit is Rs 1.00 and the ordering cost is Rs 25.00 per order. The stock holding stock is20% p.a. of unit value. You are required to ascertain (a) What is the annual inventory cost under theexisting inventory policy of the purchase manager? (b) How much money would be saved byemploying the economic order quantity?
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1. The purchase manager of X Ltd. buys its annual requirement of materials of 36,000 units in sixinstalments. Each unit is Rs 1.00 and the ordering cost is Rs 25.00 per order. The stock holding stock is20% p.a. of unit value. You are required to ascertain (a) What is the annual inventory cost under theexisting inventory policy of the purchase manager? (b) How much money would be saved byemploying the economic order quantity? 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 1. The purchase manager of X Ltd. buys its annual requirement of materials of 36,000 units in sixinstalments. Each unit is Rs 1.00 and the ordering cost is Rs 25.00 per order. The stock holding stock is20% p.a. of unit value. You are required to ascertain (a) What is the annual inventory cost under theexisting inventory policy of the purchase manager? (b) How much money would be saved byemploying the economic order quantity? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for 1. The purchase manager of X Ltd. buys its annual requirement of materials of 36,000 units in sixinstalments. Each unit is Rs 1.00 and the ordering cost is Rs 25.00 per order. The stock holding stock is20% p.a. of unit value. You are required to ascertain (a) What is the annual inventory cost under theexisting inventory policy of the purchase manager? (b) How much money would be saved byemploying the economic order quantity?.
1. The purchase manager of X Ltd. buys its annual requirement of materials of 36,000 units in sixinstalments. Each unit is Rs 1.00 and the ordering cost is Rs 25.00 per order. The stock holding stock is20% p.a. of unit value. You are required to ascertain (a) What is the annual inventory cost under theexisting inventory policy of the purchase manager? (b) How much money would be saved byemploying the economic order quantity? 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 1. The purchase manager of X Ltd. buys its annual requirement of materials of 36,000 units in sixinstalments. Each unit is Rs 1.00 and the ordering cost is Rs 25.00 per order. The stock holding stock is20% p.a. of unit value. You are required to ascertain (a) What is the annual inventory cost under theexisting inventory policy of the purchase manager? (b) How much money would be saved byemploying the economic order quantity? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for 1. The purchase manager of X Ltd. buys its annual requirement of materials of 36,000 units in sixinstalments. Each unit is Rs 1.00 and the ordering cost is Rs 25.00 per order. The stock holding stock is20% p.a. of unit value. You are required to ascertain (a) What is the annual inventory cost under theexisting inventory policy of the purchase manager? (b) How much money would be saved byemploying the economic order quantity?.
Solutions for 1. The purchase manager of X Ltd. buys its annual requirement of materials of 36,000 units in sixinstalments. Each unit is Rs 1.00 and the ordering cost is Rs 25.00 per order. The stock holding stock is20% p.a. of unit value. You are required to ascertain (a) What is the annual inventory cost under theexisting inventory policy of the purchase manager? (b) How much money would be saved byemploying the economic order quantity? in English & in Hindi are available as part of our courses for B Com.
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