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Urgent attention needed - The Legend Killer - 05-11-2004
The annual demand for an item of stock is 45 units. The item costs $200 a unit to purchase, the holding cost for one unit for one year is 15% of the unit cost and ordering costs are $300 an order.
The supplier offers a 3% discount for orders of 60 units or more, and a discount of 5% for orders of 90 units or more.
REQUIRED
Calculate the cost-minimising order size.
Solution
a)The EOQ ignoring discounts is [(2*300*45) / (15% of 200)]1/2 =30 $
Purchases (no discount) 45*200 9,000
Ordering costs 1.5 orders *$300 450
Total annual costs 9,900
b)with a discount of 3% and an order quantity or 60, units costs are as follows.
Purchases $9,000* 97% 8,730
Holding costs 30 units *15% of 97% of $200 873
Ordering costs 0.75 orders *$300 225
Total annual costs 9,828
c)With a discount of 5% and an order quantity of 90, units costs are as follows.
Purchases $9,000 * 95% 8,550
Holding costs 30 unists *15% of 95% or $200 1,282,5
Ordering costs 0.5 orders *$300 150
Total annual costs 9,982.5
My question is
1)why every holding unists times by ½ (eg. A) 15units (30/2); B) 30units(60/2))
Plz answer this quickly i will be really thankfull
Can u dig it SUcka
- avais - 05-12-2004
AOA IN THIS KIND OF QUESTION IT IS ASSUMED THAT HOLDING COST IS HALF OF THE EOQ WHILE CALCULATING THIS TYPE OF QUESTION
ALLAH HAFIZ