BU1283-Inventory ManagementAssignment-3Raj Deepak Patel074817

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Northern College **We aren't endorsed by this school
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BU 1283
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Business
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Nov 6, 2023
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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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