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Operations Research
Notes 13.1.1 In the Absence of Quantity Discount
Equational Approach
Under this approach, by using the mathematical equation, the EOQ is found out.
Example: The following information in an inventory problem is available:
Annual demand 2,400 units
Unit price (`) 2.40
Ordering cost (`) 4.00
Storage cost (`) 20% p.a.
Find the EOQ.
Solution:
Mathematical equation for calculating
EOQ =
Where, O = ` 4
U = 2,400 units
C = 20% p.a.
P = ` 2.40
`
=
`
=
=
EOQ = 200 units.
Example: A company plans to consume 760 pieces of a particular component. Past records
indicate that purchasing department spent ` 12,555 for placing 15,500 purchase orders. The
average inventory was valued at ` 45,000 and the total storage cost was ` 7,650 which included
wages, rent, taxes insurance etc., related to stores department. The company borrows capital at
the rate of 10% a year.
Fill in the following, if the price of the component is ` 12 and the Lot size is 10.
1. Purchase price per year……………..
2. Purchase expenses per year………...
3. Storage expenses per year………….
4. Capital cost per year……………….
5. Total cost………………………….
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