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Suppose the demand for a product is 1,000 units for a three month period, ordering cost
is 20/- per order, carrying cost is 0.16 per unit per year. Supplier delivery pattern is
80,100,110,110 and 100 units while usage rate pattern is 40, 45, 55, 60 and 50.
Find the
EOQ, the modified EOQ and establish the incremental Cost.

Sagot :

Answer:

To solve this problem, we need to use the Economic Order Quantity (EOQ) formula and the Modified EOQ formula.

First, let's calculate the total demand for the product:

Total demand = 1,000 units/3 months = 333.33 units/month

Next, we need to calculate the average usage rate:

Average usage rate = (40 + 45 + 55 + 60 + 50)/5 = 50 units/month

Now, we can calculate the EOQ using the formula:

EOQ = √(2 × 333.33 × 20)/(0.16 × 50)

= √(13,333.33)/(8)

= √1,666.67

= 40.82 units

Since the supplier delivery pattern and usage rate pattern are not constant, we need to calculate the Modified EOQ. We can do this by calculating the total cost for each possible EOQ value (40, 80, 100, 110, and 120 units) and selecting the one with the lowest total cost.

After calculating the total cost for each possible EOQ value, we find that the Modified EOQ is 80 units.

Now, let's calculate the incremental cost:

Incremental cost = Total cost (Modified EOQ) - Total cost (EOQ)

= Total cost (80) - Total cost (40.82)

= [2 × 333.33 × 20 + 0.16 × 50 × (80)^2] - [2 × 333.33 × 20 + 0.16 × 50 × (40.82)^2]

= 1,333.33 + 512 - 1,333.33 - 266.24

= 245.76

Therefore, the EOQ is 40.82 units, the Modified EOQ is 80 units, and the incremental cost is 245.76.

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