5. The following is the general information and information pertaining to a product component TT-4 used by Kay Engineering Works:

Required:

(a) calculate the EOQ for the component TT-4,

(b) calculate the percentage change in total annual variable costs ( of ordering and holding) relating to the component TT-4 if the annual usage was (i) 25% more, and (ii) 25% less than the current usage of 120,000 units.

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Purchase price Annual usage Purchase office cost = Rs 60 per 100 = 1,20,000 units = Fixed Rs 16,320 per annum, Variable Rs 12 per order Rent and heating of component store = Rs 1,850 per annum Interest Deterioration = 20%; and Insurance = 0.1% per annum based on total purchases = 2% per annum of all items purchased