Bhimani, Horngren,
Datar and Rajan,
Management and Cost Accounting, 5
th
Edition, Instructor’s Manual
© Pearson Education Limited 2012
2 Number of orders per year 2,000
EOQ
20,000
=
D = 10 orders
3 Demand each working days day working of
Number
D =
20,000 250
= 80
metres per day = 400 metres per week Purchasing lead time = 2 weeks Reorder point = 400 × 2 = 800 metres
21.15 EOQ for manufacturer. (20 min)
1 Relevant carrying costs per part per year Required annual return on investment 12%
×
50 = £6 Relevant insurance,
materials handling, breakage, etc.
costs per year 2 Relevant carrying costs per part per year
£8
D = 12,000;
P = £120;
C = £8
EOQ
for manufacturer is 2 2(12,000) × £120
=
£8
DPC= 600 units
2Total ordering and carrying costs =
DQ ×
P +
2
Q×
C =
12,000 600
× £120 +
600 2 × £8
= £2,400 + £2,400 = £4,800 where
Q = 600 units, the quantity ordered.
3 Purchase lead time is half a month. Monthly demand is 12,000 units ÷ 12 months = 1,000 units per month. Demand in half a month is 12
×
1,000 units or 500 units. Hence, Keep-Kool should reorder when stock of CU falls to 500 units.
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