Q1

An auto parts supplier sells Hardy-brand batteries to car dealers and auto mechanics. The demand is approximately 100 batteries per month. The supplier pays $28 for each battery and estimates that the annual holding cost is 30% of the battery's value. It costs approximately $20 to place an order(managerial and clerical costs). Solve for the following with the Formula method of EOQ model presented by F. W. Harris: 1 Economic Order Quantity Optimal number of orders 2. 3. Total Inventory cost 4. maximum length of supply order in days 5. If the ordering cost per order was overstated and was actually $10, what would be the corrected value of ECG? EEM 1. EOQ = 2DS 2x 100x 20 = 21.8 -> 22 batteries 14 8. 40 Demand= D= 100 batteries pec yet cost for placing order = s = $20 per orde Holding cost = H = 0.30X 28 = $8.40 px battery per year Ordering cost= C= $ 28 peer batters 2. Optimal number of orders = N= D 100 = 454 orders 22 pal year 3. Total inventory cost = A.O. C + A. H. C. A. O. C = D XS = 100 (20 ) = 94 Q 22 A.H. C = Q X H = 22 X 8.40 = 92 2 T. I. C = 91+92 = $183(1. Demand = 6,000 units! year Ordering Cost = R5. (SO/order Inventory carrying cost = 5%lquarter Per unit cost = Rs. 10 ol_ve for the Following: vi. Economic order quantity vii. Optimal Number of orders viii. Total inventory cost ix. Length of supply in days x. If the manager asks to place 2 orders per year, how you are going to justify for the optimal number of orders. Answers: EOQ= 600 units/order N=10 orders/year T.C= 1200 T: 36.5 days T.C for 2 orders is 3120 which is 5 times greater than the total cost for optimal number of orders Inventory caslying cost = 51. = I Pee unit cost = C1 = RS JO C = RS- 60 vi. EOQ = 2DC 2 x 6,00 0x 60 I 0.OS EOQ = 3794 units oodd N = D = 6,000 = 158 Q 3 79 4 vill. TC = Annual Ordering cost + Annual carrying cost ADC = CX N = 60 x 1. 58 = 94.8 ACO = 94. 8 ToC = 94 8+ 94.8 = 1896