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A wholesaler supplies 30 stuffed dolls each weekday to various shops dolls are purchased from the manufacturer in a lots of 120 each at Rs 1200 per lot every order in curse handling charge of rupees 60 + frieght charge of rupees 250 per order multiple and fractional lots also can be ordered and all orders are filled in next day the incremental cost is rupees 0.60 per year to store a doll in inventory the wholesaler finances inventory investment by paying its holding company two person monthly for borrowed funds how many doll should be ordered at a time to minimise total inventory cost?
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A wholesaler supplies 30 stuffed dolls each weekday to various shops d...
Understanding the Cost Structure
To determine the optimal order quantity for the wholesaler, we need to analyze the costs involved in the inventory system:
- Purchase Cost: Each lot consists of 120 dolls, costing Rs 1200 per lot.
- Handling Charges: Each order incurs a handling charge of Rs 60.
- Freight Charges: Each order also incurs a freight charge of Rs 250.
- Storage Cost: The incremental cost to store each doll is Rs 0.60 per year.
- Financing Cost: The wholesaler pays a monthly interest of 2% on borrowed funds for inventory.
Calculating the Economic Order Quantity (EOQ)
The EOQ formula helps minimize total inventory costs, which include ordering costs, holding costs, and purchase costs.
1. Annual Demand (D): The wholesaler supplies 30 dolls daily, leading to a total annual demand of:
- D = 30 dolls/day × 365 days = 10,950 dolls/year.
2. Order Cost (S): The total cost per order is:
- S = Handling Charges + Freight Charges = Rs 60 + Rs 250 = Rs 310.
3. Holding Cost (H): The holding cost per doll annually includes storage and financing costs:
- H = Storage Cost + Financing Cost = Rs 0.60 + (2% of Rs 1200 / 12 months) = Rs 0.60 + Rs 2.00 = Rs 2.60.
4. EOQ Formula:
- EOQ = √((2DS) / H)
- Plugging in values: EOQ = √((2 × 10,950 × 310) / 2.60).
5. Final Calculation:
- After calculating, the EOQ comes out to approximately 180 dolls per order.
Conclusion
To minimize total inventory costs, the wholesaler should order 180 dolls at a time. This order quantity balances ordering and holding costs effectively.
To determine the optimal order quantity for the wholesaler, we need to analyze the costs involved in the inventory system:
- Purchase Cost: Each lot consists of 120 dolls, costing Rs 1200 per lot.
- Handling Charges: Each order incurs a handling charge of Rs 60.
- Freight Charges: Each order also incurs a freight charge of Rs 250.
- Storage Cost: The incremental cost to store each doll is Rs 0.60 per year.
- Financing Cost: The wholesaler pays a monthly interest of 2% on borrowed funds for inventory.
Calculating the Economic Order Quantity (EOQ)
The EOQ formula helps minimize total inventory costs, which include ordering costs, holding costs, and purchase costs.
1. Annual Demand (D): The wholesaler supplies 30 dolls daily, leading to a total annual demand of:
- D = 30 dolls/day × 365 days = 10,950 dolls/year.
2. Order Cost (S): The total cost per order is:
- S = Handling Charges + Freight Charges = Rs 60 + Rs 250 = Rs 310.
3. Holding Cost (H): The holding cost per doll annually includes storage and financing costs:
- H = Storage Cost + Financing Cost = Rs 0.60 + (2% of Rs 1200 / 12 months) = Rs 0.60 + Rs 2.00 = Rs 2.60.
4. EOQ Formula:
- EOQ = √((2DS) / H)
- Plugging in values: EOQ = √((2 × 10,950 × 310) / 2.60).
5. Final Calculation:
- After calculating, the EOQ comes out to approximately 180 dolls per order.
Conclusion
To minimize total inventory costs, the wholesaler should order 180 dolls at a time. This order quantity balances ordering and holding costs effectively.
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A wholesaler supplies 30 stuffed dolls each weekday to various shops dolls are purchased from the manufacturer in a lots of 120 each at Rs 1200 per lot every order in curse handling charge of rupees 60 + frieght charge of rupees 250 per order multiple and fractional lots also can be ordered and all orders are filled in next day the incremental cost is rupees 0.60 per year to store a doll in inventory the wholesaler finances inventory investment by paying its holding company two person monthly for borrowed funds how many doll should be ordered at a time to minimise total inventory cost?
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A wholesaler supplies 30 stuffed dolls each weekday to various shops dolls are purchased from the manufacturer in a lots of 120 each at Rs 1200 per lot every order in curse handling charge of rupees 60 + frieght charge of rupees 250 per order multiple and fractional lots also can be ordered and all orders are filled in next day the incremental cost is rupees 0.60 per year to store a doll in inventory the wholesaler finances inventory investment by paying its holding company two person monthly for borrowed funds how many doll should be ordered at a time to minimise total inventory cost? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about A wholesaler supplies 30 stuffed dolls each weekday to various shops dolls are purchased from the manufacturer in a lots of 120 each at Rs 1200 per lot every order in curse handling charge of rupees 60 + frieght charge of rupees 250 per order multiple and fractional lots also can be ordered and all orders are filled in next day the incremental cost is rupees 0.60 per year to store a doll in inventory the wholesaler finances inventory investment by paying its holding company two person monthly for borrowed funds how many doll should be ordered at a time to minimise total inventory cost? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A wholesaler supplies 30 stuffed dolls each weekday to various shops dolls are purchased from the manufacturer in a lots of 120 each at Rs 1200 per lot every order in curse handling charge of rupees 60 + frieght charge of rupees 250 per order multiple and fractional lots also can be ordered and all orders are filled in next day the incremental cost is rupees 0.60 per year to store a doll in inventory the wholesaler finances inventory investment by paying its holding company two person monthly for borrowed funds how many doll should be ordered at a time to minimise total inventory cost?.
A wholesaler supplies 30 stuffed dolls each weekday to various shops dolls are purchased from the manufacturer in a lots of 120 each at Rs 1200 per lot every order in curse handling charge of rupees 60 + frieght charge of rupees 250 per order multiple and fractional lots also can be ordered and all orders are filled in next day the incremental cost is rupees 0.60 per year to store a doll in inventory the wholesaler finances inventory investment by paying its holding company two person monthly for borrowed funds how many doll should be ordered at a time to minimise total inventory cost? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about A wholesaler supplies 30 stuffed dolls each weekday to various shops dolls are purchased from the manufacturer in a lots of 120 each at Rs 1200 per lot every order in curse handling charge of rupees 60 + frieght charge of rupees 250 per order multiple and fractional lots also can be ordered and all orders are filled in next day the incremental cost is rupees 0.60 per year to store a doll in inventory the wholesaler finances inventory investment by paying its holding company two person monthly for borrowed funds how many doll should be ordered at a time to minimise total inventory cost? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A wholesaler supplies 30 stuffed dolls each weekday to various shops dolls are purchased from the manufacturer in a lots of 120 each at Rs 1200 per lot every order in curse handling charge of rupees 60 + frieght charge of rupees 250 per order multiple and fractional lots also can be ordered and all orders are filled in next day the incremental cost is rupees 0.60 per year to store a doll in inventory the wholesaler finances inventory investment by paying its holding company two person monthly for borrowed funds how many doll should be ordered at a time to minimise total inventory cost?.
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