Required Quantity= Rq= 12,500
Ordering Cost = Co= 2,000
Inventory Unit cost =Uc= 500 per bail
Carrying & Storage Cost 10% Uc=Cc= 50
As Economic Ordering Quantity;
EOQ = (2(Rq*Co/Uc*Cc) ^ (1/2)
= (2(12,500*2,000)/ (500*s50) ^ (1/2)
= (2000) ^ (1/2)
EOQ = 145 units
The most economical order quantity in case of previous proposals is 45 units.
Economic Order Quantity in Current Proposal:
New Required quantity= Rnq= 15,625 (N-1)
Carrying & Storage Cost 2% Uc=Cc= 10
Economic Order Quantity;
EOQ = (2(Rq*Co/Uc*Cc) ^ (1/2)
= (2(15625*2,000)/ (500*10) ^ (1/2)
= (12,500) ^ (1/2) = 112 units
The most economical order quantity in case of current proposal is 112 units.
Answer # 2 The total ordering cost which has to be borne by PTI on both the proposals:
Ordering Cost in Previous Proposal:
Ordering Cost = Number of orders x Cost per order
= 86(N-2)*2,000
= 172,414
Ordering Cost in Current Proposal:
Ordering Cost = Number of orders x Cost per order
= 140(N-3) * 2,000
= 279,018
Total Ordering Cost = A+ B = 451,432
Answer # 03
The total Carrying cost which has to be borne by PTI on both the proposals:
Carry cost on the Previous Proposal;
Average ordering quantity x carrying cost per unit
= 6,250*25,000
Total carrying cost = Rs. 156,250,000
Carry cost on the Current Proposal;
Average ordering quantity x carrying cost per unit = 7813*5,000
Total carrying cost = Rs. 39,062,500
Total Carrying cost on both the Proposal = A+B = 195,312,500
Answer #4
Total cost for the Previous Proposal:
=
order quantities (total ordering cost + total carrying cost)
= 145 (172,414+ 156,250,000)
= Rs. 22,681,250,000
Total cost for the Current Proposal:
= 112* (279018+ 39,062,500)
= Rs. 4,406,250,000
The total cost for the Current Proposal is less than Previous Proposal So , the Current Proposal for the PTI is most suitable on the cost basis.
Working:
N-1.
Previous required quantity = Rq= 12,500
25 %Increased due to new contract = 3,125
15,625
N-2.
No of Orders = Required Units/Orders Quantity
= 12,500/145
= 86
N-3.
No of Orders = Required Units/Orders Quantity
= 15625/112
= 140