VUID: BC220407945
MTH601 Assignment #2
Question # 1:
A warehouse has a limited storage capacity of 700 units. The annual demand for a product is
55,000 units. The ordering cost per order is Rs.215, and the holding cost per unit per year is Rs.25.
Calculate the total annual inventory cost if the item cost Rs.2.5
Solution:
To calculate the total annual inventory cost, we will consider the following components:
● Ordering Cost: Cost incurred to place orders.
● Holding Cost: Cost to store inventory.
● Purchase Cost: Cost of the items purchased.
Number of Orders Per Year:
Number of Orders =
Where 𝑄 is the order quantity (either EOQ or storage limit).
Total Cost:
Total Cost = Purchase cost + Ordering Cost + Holding Cost
Given Data:
● D = 55,000units/year
● C = 215 Rs per order
● H = 25 Rs per unit per year
● Storage limit = Q = 700 units
● Item cost = 2.5 Rs. per unit
Now,
Ordering Cost =
Ordering Cost = ( 55, 000 / 700 ) × 215 = 78.57 × 215 = 16892.55 Rs
Holding Cost=
Holding Cost = ( 700/2 ) × 25 = 350 × 25 = 8750 Rs
Purchase cost = 𝐷 Item cost
Purchase cost = 55,000 × 2.5 = 137,500 Rs
So,
Total Cost = 137,500 Rs + 16892.55 Rs + 8750 Rs
Total Cost = 163142 Rs
So, the total annual inventory cost is 163142 Rs .
Question # 2:
The demand for a product in a factory is 27,800 units per year, and the factory can produce at a
rate of 4,000 units per month. The setup cost per production run is Rs.657, and the holding cost is
52 paisa per unit per month. If the item cost is Rs.5 per unit, and no shortages are allowed, the
determine the following
1. The optimum manufacturing quantity.
2. The maximum inventory level
Solution:
1. Economic Production Quantity (EPQ)
The Economic Production Quantity (EPQ) model is given as:
Where
● D is annual demand,
● R is daily production rate,
● C is setup cost per cycle ,
● 𝑑 is demand rate,
● H is holding cost per unit per year.
Given Data:
● D = 27,800 units per year
● C = 657 Rs
● H = 0.52 Rs per unit per month = 0.52 x 12 = 6.24 Rs per unit per year
● P=4,000 units/month = 4000 x 12 = 48000 units per year
● d = D/12 = 27,800 units / year
Calculating:
𝐸𝑃𝑄 = 2,419.51 × 1.54
𝐸𝑃𝑄 = 3,726.045
𝐸𝑃𝑄 ≈ 3,726.05 units
2. Maximum Inventory Level
Maximum Inventory Level =
= 3,726.05 × 0.4208 = 1568.04 units
Maximum Inventory Level = 1568.04 units
So, the maximum inventory level is 1568 units approximately.
