Assuming in your business, the cost per other for your product is 4000 naira and it carry cost is 400 per unit per annum your business has a demand for 20000 unit per year,1)Calculate the order size 2)total order required during a year 3)total carried cost and total ordering cost for d year.
To calculate the order size, total order required during a year, total carrying cost, and total ordering cost, we can use the following formulas:
1) Order Size:
The order size, also known as the Economic Order Quantity (EOQ), can be calculated using the formula:
EOQ = √((2 * demand * ordering cost) / carrying cost per unit)
Given:
Demand (D) = 20,000 units per year
Ordering Cost (S) = 4,000 naira
Carrying Cost per unit (C) = 400 naira
Substituting the values into the formula:
EOQ = √((2 * 20,000 * 4,000) / 400)
Calculating:
EOQ = √(160,000,000 / 400) = √400,000 = 632 units (approximately)
Therefore, the order size is 632 units (approximately).
2) Total Order Required during a Year:
The total number of orders required during a year can be calculated by dividing the demand by the order size:
Total Orders = Demand / Order Size
Given:
Demand (D) = 20,000 units per year
Order Size (EOQ) = 632 units (approximately)
Calculating:
Total Orders = 20,000 / 632 ≈ 31.65 (approximately)
Rounded up to the nearest whole number, the total order required during a year is 32 orders.
3) Total Carrying Cost and Total Ordering Cost:
The total carrying cost can be calculated by multiplying the order size by the carrying cost per unit:
Total Carrying Cost = Order Size * Carrying Cost per unit
Given:
Order Size (EOQ) = 632 units (approximately)
Carrying Cost per unit (C) = 400 naira
Calculating:
Total Carrying Cost = 632 * 400 = 252,800 naira
The total carrying cost for the year is 252,800 naira.
The total ordering cost can be calculated by multiplying the number of orders (total orders required during a year) by the ordering cost per order:
Total Ordering Cost = Total Orders * Ordering Cost per order
Given:
Total Orders = 32 orders
Ordering Cost (S) = 4,000 naira
Calculating:
Total Ordering Cost = 32 * 4,000 = 128,000 naira
The total ordering cost for the year is 128,000 naira.
Therefore, the total carrying cost for the year is 252,800 naira, and the total ordering cost for the year is 128,000 naira.