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

Cost of finance - capital structure, Cost of Finance - Capital Structure ...

Cost of Finance - Capital Structure This is the price the company pays to retail and acquire finance. To get finance a company will pay implicit costs that are commonly recogn

Aafafa, Ask lajgkjasbgksabgbaskjbaskjbasjgbhjabgjbjgbskjgbkasbgjkabksgbksbg...

Ask lajgkjasbgksabgbaskjbaskjbasjgbhjabgjbjgbskjgbkasbgjkabksgbksbgkabkhvakkvbaoygfyabkbkkye#Minimum 100 words accepted#

Assignment, Discuss the applicabilty of such cycle to poultry business(cons...

Discuss the applicabilty of such cycle to poultry business(consider broilers)

Functions of capital markets, Functions of Capital Markets Functions o...

Functions of Capital Markets Functions of Capital Markets are as: 1. Providing long term funds that are essential for investment decisions. 2. Provide advices to investo

Evaluate the riskiness of an investment , Compare the three investments bel...

Compare the three investments below in terms of their riskiness. What is the best way to evaluate the riskiness of an investment given the information you have on them?

Analysis, Inventories turnover 8 times 4 times Re...

Inventories turnover 8 times 4 times Receivable days 63 days 40 days

The case of Apple, From the above case shareholders are very worried that a...

From the above case shareholders are very worried that apple is having too much cash,discuss six reasons why shareholders are so worried

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