Material Solution
Solution 1:
i) Re-order Level = Maximum Consumption/usage x Maximum Delivery time/lead time/re-
order period
= 20 units x 15 days = 300 units
ii) Economic Order Quantity/Re-order Quantity=
√ 2∗Annual Requirement∗Cost per Order
Carrying Cost Per unit
=
√ 2 X 5000 X 20
5
=200 units
Maximum Level = Re-order level + EOQ – (Minimum Usage x Minimum Lead time)
= 300 units + 200 units – (10 units x 6 days)
= 440 units
Here,
Total Consumption = Average Consumption x 2
= 15 units x 2
= 30 units
Minimum Consumption = Total – Maximum Consumption
= 30 units – 20 units
= 10 units
iii) Minimum Level = Re-order Level – (Average usage/Normal Usage x Average Reorder
period/Average lead time)
= 300 units – (15units x 10days)
= 150 units
iv) Danger Level = Average Consumption x Lead time for emergency purchase
= 15 units x 4 days = 60 units
Solution 2:
i) Economic Order Quantity/Re-order Quantity=
√ 2∗Annual Requirement∗Cost per Order
Carrying Cost Per unit
=
√ 2∗2600 units∗100
15
= 186 units
Here, Annual Requirement = 50 units per week x 52 weeks = 2600 units
ii) Re-order Level = Maximum Consumption/usage x Maximum Delivery time/lead time/re-
order period
= 75 units x 6 weeks = 450 units
iii) Minimum Level = Re-order Level – (Average usage/Normal Usage x Average Re-order
period)
= 450 units – (50 units x 5 weeks)
= 200 units
Maximum Reorder Period + Minimum Reorder Period
Here, Average Re-order Period =
2
6+ 4
=
2
= 5 weeks
iv) Maximum Level = Re-order level + EOQ – (Minimum Usage x Minimum Lead time)
= 450 units + 186 units-(25 units x 4 weeks)
= 536 units
Maximum Level+ Minimum Level
v) Average Stock Level =
2
536 units+200 units
=
2
= 368 units
Solution 4:
Requirement
i) Economic Order Quantity/Re-order Quantity=
√ 2∗Annual Requirement∗Cost per Order
Carrying Cost Per unit
=
√ 2∗8,000 units∗200
400 x 20 %
=
√ 32 , 00,000
80
= 200 units
ii)When purchase at EOQ
Annual Demand
Numbers of order =
Purchase at a time
8,000 units
=
200 units
= 40 times
Total cost when purchase at EOQ:
Particulars Amount
Cost of Material Purchased (8000 x 400) 32,00,000
Ordering Cost (200 x 40 times) 8,000
Carrying Cost 8,000
Purchase at a time
x Cost per unit x % of carrying
2
cost
200
= x 400 x 20%
2
Total Cost at EOQ 32,16,000
When purchase at 4% Discount
Annual Demand
Numbers of order =
Purchase at a time
8,000 units
=
4,000 units
= 2 times
Cost per unit of “Alpha” = 400 – (400 x 4%)
= 400 – 16
= 384
Total cost when purchase at 4% Discount:
Particulars Amount
Cost of Material Purchased (8000 x 384) 30,72,000
Ordering Cost (200 x 2 times) 400
Carrying Cost 1,53,600
Purchase at a time
x Cost per unit x % of carrying
2
cost
4000
= x 384 x 20%
2
Total Cost at 4% Discount 32,26,000
Extra cost incurred when purchased at discount = 32, 26,000 – 32, 16,000
= 10,000
So, discount offer should be rejected.
Solution 5
Monthly demand of product =2000 units
Annual demand of product = 2000 x 12 = 24,000 units
Material required to produce 1 units = 2 kg
Material required to produce 24,000 units = 24,000 x 2 = 48,000 kg
Annual requirement of material = 2000 x 12 x 2 =48,000 kg
Economic Order Quantity/Re-order Quantity=
√ 2∗Annual Requirement∗Cost per Order
Carrying Cost Per unit
=
√ 2∗48,000 kg∗120
20 x 10 %
= 2400 kg
Annual Demand
Numbers of order =
Purchase at a time
48,000
=
2,400
= 20 times
Total cost when purchase at EOQ:
Particulars Amount
Cost of Material Purchased (48,000 x 20) 9,60,000
Ordering Cost (120 x 20 times) 2,400
Carrying Cost 2,400
Purchase at a time
x Cost per unit x % of carrying
2
cost
2 4 00
= x 20 x 10%
2
Total Cost at EOQ 964,800
