School

Northern College **We aren't endorsed by this school

Course

BU 1283

Subject

Business

Date

Nov 6, 2023

Pages

18

Uploaded by Raj_17 on coursehero.com

Northern College of Applied Arts and Technology
Assignment - 3
Raj Deepak Patel (202103109)
BU1283 - Inventory Management
Professor Ashley Wojtus
April 17
th
, 2022

1.
An SKU costing $90 is ordered in quantities of $6,000 units, annual demand is 750,000 units.
Carrying costs are 20%, and the cost of placing an order is $35. Calculate the following:
a.
Average inventory
b.
Number of orders placed per year
c.
Annual inventory carrying cost
d.
Annual ordering cost
e.
Annual total cost
Solution:
Given Data:
SKU Cost = $90
Ordered Quantities = 6,000 units
Annual Demand = 750,000
Carrying Cost = 20%
Cost of placing order = $35
Therefore,
a)
Average Inventory = Ordered Quantities / 2
= 6,000 / 2
= 3,000 units
b)
Number of orders placed per year = Annual Demand / Ordered Quantities
=
750,000 / 6,000
=
125
c)
Annual Inventory carrying cost
=
(Ordered quantities / 2) x Average carrying cost
Here, Averaging Carrying cost = 20% of $95 = $18
Therefore, Annual Inventory carrying cost =
(6,000/2) x $18
= 3,000 x $18
= $54,000
d)
Annual ordering cost
=
(Annual Demand / Ordered Quantities) x Cost of placing order
= (750,000/6,000) x $35
= 125 x 35
= $4375
e)
Annual total cost = Annual Inventory carrying cost + Annual ordering cost
= $54,000 + $4,375
= $58,375

2.
A company decides to establish an EOQ for an item. The annual demand is 500,000 units,
each costing $17, ordering costs are $40 per order, and inventory carrying costs are 18%.
Calculate the following:
a.
The EOQ in units
b.
Number of orders per year
c.
Cost of ordering, cost of carrying inventory, and total cost
Solution:
Given Data:
Annual Demand: 500,000 units
Unit cost = $17
Inventory Carrying cost = 18%
Carrying cost per unit = 18% of unit cost
= 18% of $17
= $3.06
Ordering Cost = $40/order
a.
The EOQ in units =
√
(
2
x Annual Demand x Orderingcost
)
Carrying Cost
=
√
(
2
x
500,000
x
40
)
3.06
= 3,615.50 units
b.
Number of orders per year = Annual Demand / EOQ
=
500,000 / 3,615.50
=
138.29 order/year
=
approx. 139 orders/year
c.
Cost of ordering, cost of carrying inventory, and total cost:
i.
Cost of ordering
=
Number of orders per unit x Ordering cost
= 139 x 40
= $5,560
ii.
Cost of carrying inventory = (EOQ / 2) x Carrying cost per unit
= (3,615.50 / 2) x 3.06
= $5,531.715
iii.
Total Cost
=
Cost of Ordering + Cost of Carrying Inventory
= $5,560 + $5,531.715
= $11,091.715

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