SOL INVY MGT-2.pdf - SOLUTIONS TO INVENTORY MANAGEMENT...

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SOLUTIONS TO INVENTORY MANAGEMENT Problem 1. NORTON Corporation has been buying Product XY in lots of 1,250 units which represents a three-month’s supply. The cost per unit is P220. The ordering cost is P900 per order; and the annual inventory carrying cost per units is P25.00. Assume that the units will be required evenly throughout the year. COMPUTE THE FOLL0WING: a. Economic Order Quantity b. Number of orders in a year C. Average inventory based on EOQ. D. Total carrying cost, ordering cost and relevant inventory costs at EOQ E. Total relevant inventory costs for order sizes of 750 units, 600 units, 500 units. COMPUTATIONS: a. EOQ = 2 x 5,000 x 900/25 = 600 units b. No. of orders =5,000/600 = 8.33 c. Ave Inventory based on EOQ = 600/2 = 300 d. Total cost at EOQ OC= 8.33 x p90 = P7,500 CC = 300 x P25 =. 7,500 P15,000 ======== e. Total Inventory Cost 750 units 600 units 500 units Ordering Cost 5,000/750 x 900= P6,000 5,000/600 x 900=7,500 5,000/500 x 900=9,000 Carrying Cost 750/2 x 25 = 9,375 600/2 x 25 =7,500 500/2 x 25 = 6,250 Total P15,375 P15,000 P15,250 Problem 2. KEN Corporation determines the manufacturing cost per order of Material AB at P25.00. The company expects to use P50,000 of this material. Its carrying charge is 10% of inventory.

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