Example of eoq assumptions, Finance Basics

Assignment Help:

Example of EOQ Assumptions

ABC Ltd requires 2,000 units of a component in its manufacturing method in the coming year that costs of Sh.50 each. The items are obtainable locally and the lead-time in one week.  Each order costs of Sh.50 to prepare and process whereas the holding cost is of Shs.15 per unit per year for storage plus 10 percent opportunity cost of capital.

Required

a) How many units must be ordered each time an order is located to minimize inventory costs?

b) What is the reorder level?

c) How many orders will be located per year?

d) Find out the total relevant costs.

Suggested Solution:

a)

965_Example of EOQ Assumptions.png

Where      :  D = 2,000 units

                   Co = Sh.50

                   Cn = Sh.15 + 10% x 50 = Sh.20

                   L = 7 days

2308_Example of EOQ Assumptions 1.png

b) R  =       DL/360

         =       (2,000 * 7)/360

          =       39 units

c) Number of orders = D/Q       

                               = 2,000/100

                               = 20 orders

d) TC     =       ½QCn + (D/Q) * C0

              =       ½(100)(20) +  (2,000/100) * 50

              =       1,000 + 1,000

              =       Sh.2,000

Beneath the basic EOQ Model the inventory is permitted to fall to zero just before another order is acknowledged.


Related Discussions:- Example of eoq assumptions

The income statement and the balance sheet, Conduct research and explain th...

Conduct research and explain the companies, their operations, locations, markets, and lines of business. Collect financial statements for the past three years, fiscal or calendar .

Retirement, Ask quQUESTION 1 1. In the ratio test used to determine whether...

Ask quQUESTION 1 1. In the ratio test used to determine whether a qualified plan is nondiscriminatory, what is the minimum percentage of nonhighly compensated employees who must be

Explain the meaning of gross and net yield, Explain the meaning of Gross an...

Explain the meaning of Gross and Net Yield While gross yield refers to the yield realized by investor before paying taxes, net yield is what remains with him after paying th

Shareholders'' wealth maximization, Shareholders' wealth maximization - Obj...

Shareholders' wealth maximization - Objectives of Business Entity Shareholders' wealth maximization refers to maximization of the total present value of each decision made in

Capital structure ratio, Capital Structure Ratio Gearing/Leverage/Capi...

Capital Structure Ratio Gearing/Leverage/Capital Structure Ratio The ratio signifies the extent whether the firm has borrowed fixed charge capital to finance the

IS LM, After carefully reading all the available information, prepare a two...

After carefully reading all the available information, prepare a two page (double-spaced) essay and answer the following questions: Assume that we have the following data: C=100+0.

Example of miller-orr model, Example of Miller-Orr Model XYZ's managem...

Example of Miller-Orr Model XYZ's management has put the minimum cash balance to be equivalent to Sh.10, 000. The standard deviation of daily cash flow is of Sh.2, 500 and the

Traditional business of deposit taking and lending, Question 1: i) Disc...

Question 1: i) Discuss  the main risks facing a retail bank in its traditional business of deposit taking and lending? ii) How can a bank manage the risks related to credit

Significance of investment decisions, Significance of Investment Decisions ...

Significance of Investment Decisions a) Such type of decisions is importance since they will influence the company's size or like fixed assets, retained and sales earnings.

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd