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

Finance, finance is divided into _____ and___________

finance is divided into _____ and___________

Finance applicatios and theory, Zoeckler Mowing & Landscaping''s year-end 2...

Zoeckler Mowing & Landscaping''s year-end 2012 balance sheet lists current assets of $436,500, fixed assets of $551,500, current liabilities of $417,900, and long-term debt of $317

Throughput accounting, state a case where throughput according system is re...

state a case where throughput according system is required

Cash management, A compnay can arrange for a secured loan amounting to 150,...

A compnay can arrange for a secured loan amounting to 150,000,000 for one year at an interest rate of 18% per annum based on the initial balance of the loan. The lender also imposs

Weighted average cost of capital, Below is information provided for tw...

Below is information provided for two companies, A and B.  Assuming a risk-free rate of 2.5%, an effective tax rate of 40%, and a market risk premium of 5.5%, estimate th

Illustrate role of credit unions in depository institutions, Illustrate the...

Illustrate the role of credit unions in depository institutions. Credit unions: Credit unions are non-profit institutions equally organised and owned through their member

Student., what type of assets does Intel own and the most significant asset...

what type of assets does Intel own and the most significant asset to the company and why?

Determine usefulness of information in financial statements, Since 1968, Dr...

Since 1968, Dracula Limited has traded in Doncaster, South Yorkshire as a manufacturer of fancy-dress and theatrical costumes. It produces a wide range of general theatrical costum

Debenture finance, Debenture Finance A type of long term debt raised a...

Debenture Finance A type of long term debt raised after a company sells debenture certificates to the holder and raises finance in return. The term debenture has its source fr

Discounts and credit terms, Discounts and Credit Terms Credit Terms ...

Discounts and Credit Terms Credit Terms Credit terms involve both the length of the credit time and the discount specified.  The terms 2/10, n/30 means that a 2 percent d

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