Reference no: EM132829806
Problem - Lebar Daun Sdn Bhd is planning to use the economic order quantity model to determine the optimal order levels of raw materials. Material 2 is consumed evenly over the year and the current usage is 120,000 units. The material is purchased in boxes and each box contains 12 units of material Z, at a price of RM252 per box. A safety stock of 200 boxes is kept.
The cost of placing and handling orders is estimated to be RM6,300, which is based cost incurred for similar orders that have already made. The cost of RM6,300 was for 30 orders. The inflation of 2 per cent should be added to the above ordering costs.
Besides, the company estimates to be charged the transporation cost of RM15 per order. It should be assumed that ordering costs change in proportion to the number of orders place. Other costs which relate to material Z such as insurance, interest and space costs for a year, were calculated at 15% of the purchase price.
Required -
a. Calculate the order quantity that would minimize the cost of item Z.
b. Determine number of order in a year.
c. Determine the required frequency of placing orders (in week).
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