Pooja Pipes Ltd. uses about 75,000 valves per year and the usage is fairly constant at 6.250 valves per month. The valve costs Rs. 1.50 per unit when bought in large quantities; and the carrying cost is estimated to be 20% of average inventory investment on an annual basis. The cost to place an order and process the delivery is Rs. 18. It takes 45 days to receive delivery from the date of an order and a safety stock of 3.250 valves is desired. You are required to determine (1) The most economical order quantity and frequency of orders: () the re- order point and (iii) the most economical order quantity if the valves cost Rs. 4.50 each instead of Rs. 1.50 AN (1) Economic Order Quantity (EOQ) 20XP S Where - U P Annual requirement 75,000 Units Ordinary Cost- 318 per order Carrying Cost per unit per annum = 20% of average inventory S 2x75,000x18 0.30 3,000 units Working Note: r53 75.000 x 1.50 x 20 Total Carrying Cost 100 Carrying Cost per unit - 22,500/75,000 - 20.30 Frequency of Orders: Number of order per year = 75,000/3,000 - 25 orders Orders may be placed in every 14.6 days, i.e. 365/25 - 14.6 days Re-order point - (Lead Time x Normal usage) + safety stock (1.5 months x 6,250 units per month) + 3,250 units = 12,625 units Or (m) (iii) EOQ when the cost per value is 24.50 2x 75,000x18 0.90 - 1732 units 75,000 x4.50 x 20 Total Carrying Cost - - 67,500 100 Carrying Cost per unit - 67,500/75,000 = 0.90 XYZ Ltd. are the manufactures of tyre tubes for cars. The following are the details of their operations during the current financial year: Ordering cost (per order) * 100 Inventory carrying cost (per annum) 20% Cost of tubes (per tube) 500 Normal usage (tubes per week) 150 Minimum usage (tubes per week) 50 Maximum usage (tubes per week) 200 Lead time to supply (weeks) 6-8