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

Explain trade liberalisation, Problem 1 a) Explain Trade Liberalisatio...

Problem 1 a) Explain Trade Liberalisation and give your views whether emerging economies should adopt trade liberalization protectionist measures to attain economic growth.

What is the impact of c on interest rates, Comments : The approved budget f...

Comments : The approved budget for 1997, reduced government spending in housing and urban development, health and human service, and education. Ignoring any other modifications, ho

Define the term- origination, Define the term- Origination Originati...

Define the term- Origination Origination offers to the work of investigation, analysis and processing of new project proposals. Origination starts before an issue is really

Differentiate between initial and termination expenses, (a) State the most ...

(a) State the most appropriate drivers for the following direct expenses: (i) New business administration department's salary costs (ii) Medical examinations for temporary life

Explain mechanics of security trading in stock exchange, Explain Mechanics ...

Explain Mechanics of security trading in Stock Exchange Introduction: An investor should have some knowledge of how the securities markets operate. Marketing of old or new se

Fixed Exchange vs Flexible Exchange Rate, Critize the flexible exchange rat...

Critize the flexible exchange rate regime from the viewpoint of the proponents of the fixed exchange rate regime

Cost of redeemable debentures and preference shares, Cost of Redeemable Deb...

Cost of Redeemable Debentures and Preference Shares Redeemable fixed return securities have an exact maturity period.  The cost of those securities is called redemption yield

New divisor, Able, Baker and Charlie are the only three stocks in an index....

Able, Baker and Charlie are the only three stocks in an index. The stocks will sell for $93.$312 and $78 respectively. If Baker undergoes a 2-for-1 stock split, what is the new div

Evaluate the fair value of the stock, Lavista Ltd is a leading music entert...

Lavista Ltd is a leading music entertainment company in the country and the stocks of the company are actively traded in the stock exchange. For the year just ended few days back

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