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Week 6- 13/05/2022

Financial Management (IC10026)

Tutorial on Economic Order Quantity Model

Question no 1:

Demand for the Child Cycle at Best Buy is 500 units per month. Best Buy incurs a fixed order placement, transportation, and receiving cost of £4,000 each time an order is placed. Each cycle costs £ 500 and the retailer has a holding cost of 20 percent. Evaluate the number of computers that the store manager should order in each replenishment lot?

Question no 2:

ABC Ltd. uses EOQ logic to determine the order quantity for its various components and is planning its orders. The Annual consumption is 80,000 units, Cost to place one order is £ 1,200, Cost per unit is £ 50 and carrying cost is 6% of Unit cost. Find EOQ, No. of order per year, Ordering Cost and Carrying Cost and Total Cost of Inventory.

Question No 3:

Midwest Precision Control Corporation is trying to decide between two alternate Order Plans for its inventory of a certain item. Irrespective of the plan to be followed, demand for the item is expected to be 1,000 units annually. Under Plan 1st, Midwest would use a teletype for ordering; order costs would be £ 40 per order. Inventory holding costs (carrying cost) would be £ 100 per unit per annum. Under Plan 2nd order costs would be £ 30 per order. And holding costs would 20% and unit Cost is £ 480. Find out EOQ and Total Inventory Cost than decide which Plan would result in the lowest total inventory cost?

Question no 4:

A manufacturing company placed an order of 24,000 units semi-annually at a price of $20 per unit. Its carrying cost is 15% and the order cost is $12 per order.

Required:

(i). What is the most economical order quantity?

(ii). How many orders need to be placed?