FIN622

FIN622 Problem No: 2 Solution

Working:
No. of orders=required Units/Order quantity

= 200000/200000= 1 order
= 200000/150000=1.333 orders

= 200000/100000=2 orders

= 200000/50000= 4 orders

= 200000/20000= 10 orders

= 200000/10000= 20 orders

Ordering cost =Number of orders x Cost per order

Order size of 200000 = 1*50= 50

Order size of 150000 = 1.333*50

= 66.5Order size of 100000 = 2*50

= 100Order size of 50000 = 4*50

=200Order size of 20000 =10*50

=500Order size of 10000 = 20*50= 1000

Carrying cost = Average ordering quantity x Carrying cost per unit

Order size of 200000 = 100000*.06= 6000

Order size of 150000 = 75000*.06= 4500

Order size of 100000 = 50000*.06= 3000

Order size of 50000 = 25000*.06= 1500

Order size of 20000 = 10000*.06= 600

With order size of 10000 = 5000*.06= 300

(b) What kind of trends do you find in ordering costs and carrying costs while decreasing the order size?There is negative trend in ordering and carrying cost.(c) Which order should be placed by Mr. Saleem according to the table and why?Mr. Saleem should place an order of 20,000 books .Because at this point there is EOQ. and total cost is minimum.And also RU/EOQ =200000/18257.42 (10 order approximately) (d) Calculate economic order quantity. Is your answer consistent

with your findings in part (a).Solution:EOQ =2xRUxOCUC x CC%= 2*200000*50/.06=333333333.33EOQ = 18257.42