SOLUTION#01:

D = 12000 Yards
Ch = 0.80
Co = 200
Days = 311 (neglecting all Sunday and including the other holidays)

2 CoD
EOQ=
√ Ch
By putting values in above equation, we get
EOQ= 2449.48

WORKING:
 Holding Costs:
Holding costs = Average stock * Holding cost for one unit of inventory per annum
Average Inventory = Order quantity/2
= 2449.48/2 = 1224.74
Holding cost = 1224.74*0.80 = 980
 Ordering Costs:
Ordering costs = Number of orders * ordering costs per order
Number of orders = Annual demand / order quantity
= 12000/2449.48 = 4.89
Ordering cost= 200*4.89= 980

Solution continues:

Purchase (12000*0.80) = 9600

Holding Costs = 980
Ordering Costs = 980
Total annual costs = 11560

 The total annual inventory cost is determined by substituting EOQ into the total cost
formula:
TCmin = CoD/ Q + Ch(Q)/ 2
= 200(12000)/2449.48 + 0.80(2449.48)/2
= 1959.59
 SOLUTION#03:

Collecting data according to question#01

D = 12000 Yards
Ch = 0.80
Co = 200
Days = 311 (neglecting all Sunday and including the other holidays)
R = 12000/311 = 38.58 = by rounding off we get (39)
P = 200 per day
Formula used:

2∗D∗Co
EBQ=
√ d
Ch∗(1− )
P
By putting the values in above formula, we get:
= 2730.09

 This value is substituted into the following formula to determine total minimum annual
inventory cost:

Tmin = Co(D)/ Q + Cc(Q)/2 *(1-R/P)

= 200(12000)/2730.09 + 0.80(2730.09)/2 * (1- 39/200)
= 1758.18
 The length of time to receive an order for this type of manufacturing operation is commonly
called the length of the production run:
Production run = Q/P
= 2730.09/200
= 13.65
 The number of orders per year is actually the number of production runs that will be made:
Number of production runs (from orders) = D/Q
= 12000/2730.09
= 4.39
 The maximum inventory level is:
Maximum inventory level = Q(1-R/P)
= 2730.09(1-39/200)
= 2198 yard.
 SOLUTION#05:

Purchase price £100 per unit

Annual demand 7,000 units
Ordering cost £300
Annual holding cost 20% of purchase price
EOQ 1000 units

Working:

 Holding Costs:
Holding costs = Average stock * Holding cost for one unit of inventory per annum
Average Inventory = Order quantity/2
= 1000/2 = 500
Holding cost = 500* (100*20%) = 10000
 Ordering Costs:
Ordering costs = Number of orders * ordering costs per order
Number of orders = Annual demand / order quantity
= 7000/1000 = 7
Ordering cost = 7*300 = 2100

PURCHASES (7000*100) 700000

HOLDING COST 10000
ORDERING COST 2100
TOTAL ANNUAL COST 712100

A. Ascertain whether the company should order 1,300 units at a time in order
to secure a 15% discount

WORKING:
 Holding Costs:
Holding costs = Average stock * Holding cost for one unit of inventory per annum
Average Inventory = Order quantity/2
= 1300/2 = 650
Holding cost = 650*(15%of85%*100)
= 650*(12.75) = 8288
  Ordering Costs:
Ordering costs = Number of orders * ordering costs per order
Number of orders = Annual demand / order quantity
= 7000/1300 = 5.38
Ordering cost = 5.38*300 = 1615.38

PURCHASES (700000*85%) 595000

HOLDING COST 8287.5
ORDERING COST 1615.38
TOTAL ANNUAL COST 604903

The cheapest option is to buy 1300 units at a time with 15% discount rate

SOLUTION#06:

D = 300 units
Purchase price = 200
Co = 300
Ch = 15% of purchase price
EOQ = 77.45

WORKING:
 Holding Costs:
Holding costs = Average stock * Holding cost for one unit of inventory per annum
Average Inventory = Order quantity/2
= 77.45/2 = 38.72
Holding cost = 38.72*30 = 1161.75
 Ordering Costs:
Ordering costs = Number of orders * ordering costs per order
Number of orders = Annual demand / order quantity
= 300/77.45 = 3.87
Ordering cost = 3.87*300 = 1162

PURCHASES (300*200) 60000

HOLDING COST 1162
ORDERING COST 1162
TOTAL ANNUAL COST 62324
 A. The Supplier offers a 4% discount for orders of 350 units or more

WORKING:
 Holding Costs:
Holding costs = Average stock * Holding cost for one unit of inventory per annum
Average Inventory = Order quantity/2
= 350/2 = 175
Holding cost = 175*(15%of96%*200)
= 175*(28.8) = 5040
 Ordering Costs:
Ordering costs = Number of orders * ordering costs per order
Number of orders = Annual demand / order quantity
= 300/350 = 0.85
Ordering cost = 0.85*300 = 255

PURCHASES (60000*96%) 5760

HOLDING COST 5040
ORDERING COST 255
TOTAL ANNUAL COST 11055

B. discount of 9% for orders of 4000 units or more.

WORKING:
 Holding Costs:
Holding costs = Average stock * Holding cost for one unit of inventory per annum
Average Inventory = Order quantity/2
= 4000/2 = 2000
Holding cost = 2000*(15%of91%*200)
= 2000*(27.3) = 54600
 Ordering Costs:
Ordering costs = Number of orders * ordering costs per order
Number of orders = Annual demand / order quantity
= 300/4000 = 0.075
Ordering cost = 0.075*300 = 23

PURCHASES (60000*91%) 54600

HOLDING COST 54600
 ORDERING COST 23
TOTAL ANNUAL COST 109223
By this we can say we should order 350 unit at 4% discount rate

SOLUTION#07:
D = 40000
Co = 60
Ch = 10.50
Purchase price = 25
Formula used:

2 CoD
EOQ=
√ Ch
By putting values in the above equation, we get.
EOQ = 676.123
Order Q 100 200 300 400 500 600 800 1000
Avg Stck 50 100 150 200 250 300 400 500
No.of Orders 350 185 116.67 87.5 70 58.33 43.75 35

Annual 525 1050 1575 2100 2625 3150 4200 5250

holding cost
Annual 21000 11100 7000.2 5250 4200 3499.8 2625 2100
ordering cost
Total 21525 12150 8575.2 7350 6825 6649.8 6825 7350
relevant cost

At this point our EOQ is 600 units because total relevant cost is lower

SOLUTION#02:
DD = R = 900
D = 900*365 = 328500
Days = 365
P = 4500
Co = 4500
Ch = 15% of purchase price = 1.735
Purchase price = 11.50
Formula used:

2∗D∗Co
EBQ=
√ d
Ch∗(1− )
P
By putting values in above equation, we get:
EBQ = 46286

SOLUTION#04

D = 30000
Co = 200
Ch = it varies according to the quantity ordered
Formula used:

2 CoD
EOQ=
√ Ch
For the Q from 1-399
Ac = 22.30
Ch= 25% of ac = 5.575
By putting the values in the above formula, we can get.
EOQ = 1467.13
For Q from 400-999
Ac = 21.45
Ch = 25% of ac = 5.36
By putting the values in the formula, we get.
EOQ = 1496.26
For the Q 1000+
Ac = 21.80
Ch = 25%of ac = 5.45
By putting the values in above equation, we get.
EOQ = 1483.85

SOLUTION#08
Formula used:
Turnover ratio of material = Raw material consumed/ average stock.
Raw material consumed = Op stock+Purchases-Closing stock.
Avg stock = (Op + Closing)/2
Day in inventory = 365 days/ T ratio

A. WORKING:
1. MATERIAL X:
Raw mat consumed = 9500+210000-8000 = 211500
Avg stock = (9500+8000)/2 = 8750
T ratio = 211500/8750 = 24.171
2. MATERIAL Y:
Raw mat = 9500+190500-15000 = 185000
Avg stock = (9500+15000)/2 = 12250
T ratio = 185000/12250 = 15.102
3. MATERIAL Z:
Raw mat = 8500+32000-10000 = 30500
Avg stock = (8500+10000)/2 = 9250
T ratio = 30500/9250 = 35.729

B. DAYS IN INVENTORY:
Materia X:
Days in inv = 365/24.171 = 15.100
Material Y:
Days in inventory = 365/15.102 = 24.168
Material Z:
Days in inv = 365/35.729 = 10.215

C. CONCLUSION:
The inventories turnover ratio is an effective measure of how
well a company is turning its inventory into sales. The ratio also shows how
well management is managing the costs associated with inventory and
whether they're buying too much inventory or too little
Material X has a better turnover ration rather than the other material Y
and Z because there are more sales of material X then the material Y and Z.