922 (1) Carrying Cost Storage Rate 2% Interest Rate 12% Obsolescence Rate 6% Total 20% per annum C = 20% of 20= *. 4 per unit per annum. 2A0 2 x 5,000 x 16 EOQ = 40,000 = 200 Units. 400 Total Variable Cost: Ordering Cost = 5,000/200 or 25 orders@.16 400 Carrying Cost of average inventory = 200/2 or 100 Units @ 2.4 Total variable cost 800 (ii) If an incorrect price of . 12.80 is used: C = 20% of 12.80 = 2.2.56 per unit per annum. EOQ = 2x5,000x16 = 250 units 2.56 Total Variable Cost: Ordering Cost = 5,000/250 or 20 orders @ 5.16 320 Carrying Cost of average inventory) 250/2 or 125 units at 2.2.56 320 Total Variable Cost 640 Illustration 28: A Company works 50 weeks in a year. For a certain part, included in the assembly of several parts, there is an annual demand of 10,000 units. This part may be obtained from either an outside supplier or a subsidiary company. The following data relating to the part are given: From outside From subsidiary supplier company . . Purchase price/unit 12 13 Cost of placing order 10 10 Cost of receiving an order 20 15 Storage and all carrying costs, including capital 2 2 cost per unit per annum (0) What purchase quantity from which source would you recommend? (it) What would be the minimum total cost