Query regarding Material Costing

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  1. VINOD KUMAR SAH

    VINOD KUMAR SAH New Member

    JP Limited manufacturarers of a special product, follows the policy of EOQ for one of its components details are as follows.
    Purchase Price per Component Rs 200
    Cost of an order Rs 100
    Annual cost of carrying one unit in inventory 10% of Purchase Price
    Total cost of carrying inventory and ordering per annum Rs 4000
    The company has been offered a discount of 2% on the price of the component provided that lot size is 2000 component at a time
    You are required to :
    - Compute the EOQ
    - Advice whether the quantity discount offer can be accepted, (Assume that the inventory carrying cost does not varry according to discount policy).
    - Would your advice differ if the company is offered 5% discount on a single order?

    PLEASE EXPLAIN WITH WORKING NOTES

    MY QUERY IS:
    AT EOQ LEVEL ORDERING COST AND CARRYING COST WILL BE EQUAL
    THUS, CARRYING COST WILL BE 4000/2=2000/- AND ORDERING COST ALSO BE 2000/-

    ACCORDING TO QUESTION ANNUAL COST OF CARRYING PER UNIT 10PRECENT OF PURCHASE PRICE
    SO, CARRYING COST PER UNIT WILL BE 10% OF RS 200 = 20/-
    LET, EOQ X

    EOQ MULTIPLIED BE CARRYING COST PER UNIT = ANNUAL CARRYING COST AT EOQ LEVEL

    OR X*RS 20 = 2000
    OR 20X = 2000
    O X = 2000/20
    X = 100 BUT ANSWER GIVEN IS 200
     
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