An aircraft uses high tensile bolts at an approximately constant rate of 50,000 numbers per year. The bolts cost Rs 20 each and the purchase department estimated the cost at Rs 200 to place an order.

The opportunity cost on working capital is 20% per year. No shortages are allowed.

(i) How frequently should orders be placed and what is economic order quantity?

(ii) If orders could be executed only once in two months, the ordering quantity would be higher than the optimal quantity. By this, what would be the percentage change in the total relevant cost?

(iii) The company finds, to its error, that the cost of placing an order was Rs 5,000 and carrying cost was 15% per year and not the earlier data, how much was the company losing per year on inventory, because of imperfect information?

(iv) Working on the new ordering cost and carrying cost, the company receives the following offer from the supplier:

Should they make use of this offer?

(v) If the entire requirement has to be bought in a single order, what should be the justifiable unit price offer to the company?

Transcribed Image Text:

Upto 20,000 pieces per order, the price is Rs 20.00 per unit Above 20,000 pieces upto 30,000 Rs 19.50 per unit Above 30,000 pieces upto 45,000 Above 45,000 Rs 19.25 per unit Rs 19.00 per unit