ECS 4863 Assignment_3_Questions And Answers

ECS 4863 Assignment_3_Questions And Answers . 1. The forecast annual demand for a particular product sold by a retail store is 600 units; the cost is £60 per unit. The cost of ordering and receiving delivery is £15 on each occasion. Stockholding costs are 20% per annum per unit of stock held. You are required to: (a) Derive the basic EOQ/EBQ formula defining any symbols used and stating clearly the assumptions you have made; [5] Let D = Annual demand, p = purchase price, C 0 = ordering cost, C H = stockholding cost per unit per annum and Q = EOQ TIC = pD + C0D/Q + CHQ/2 dTIC/dQ = -Q-2C0D + CH/2 = 0, Using the principles of differentiation C0D/Q2 = CH/2 2C0D = Q2CH Q 2 = 2C0D /CH Q = (2C0D /CH) 1/2 (b) Calculate the optimum order quantity if there is to be instantaneous delivery of an order; [5] From EOQ = (2C0D /CH) 1/2 EOQ = (2*15*600 / 0.2*60)1/2 = 15001/2 = 38.73 units (c) Calculate the effect on the EOQ of the supplier offering quantity discount of 10% when orders equal to, or in excess of 150 units are placed. [5] TICEOQ = pD + C0D/Q + CHQ/2 = 60*600 + 15*600/38.73 + 12*38.73/2 = 36000 + 233.4 + 233.4 = £36,466.8 TIC150 = pD + C0D/Q + CHQ/2 = 54*600 + 15*600/150 + 10.8*150/2 = 32400 + 60 + 810 = £33,270 The effect of the discount on the EOQ is that it reduces the TIC by £3,196.8 and hence it is worth taking the discount offer.