Eats Ltd. supplies a number of products to bakers and confectioners. One of their products consists of packets of cake decorations. The cake decorations are sold in packets of twelve decorations for Rs. 20 per packet. The demand for the cake decorations is very constant and has over a long period of time been at the rate of 2,000 packets per month. The packets cost Eats Ltd. Rs. 10 each from the manufacturer and a lead time of four days is required from date of order to date of delivery. Ordering costs are Rs. 1.20 per order and the holding or carrying cost is 10 per cent per annum.
(a) Calculate the following:
(i) The economic order quantity:
(ii) The number of orders to be placed per annum:
(iii) The total cost of buying and carrying cake decorations per annum.
(b) Assume that the present stock level is 200 packets and that no buffer stocks are kept. When must the next order be given to the supplier? (For purposes of your calculation one year consists of 360 days).
(c) There are certain major difficulties often experienced by firms in seeking to use the EOQ Formula. List them briefly.