(a) A company uses 15,000 units of stock item 6786 each year. The item has a purchase cost of Rs.4 per unit. The cost of placing an order for re-supply is Rs.220. The annual holding cost of one unit of the item is 10% of its purchase cost.
- What is the economic order quantity for item 6786, to the nearest unit?
- What would be the effect of an increase in the annual holding cost per Unit on (1) the EOQ and total annual ordering costs?
(b) Data relating to stores item 6787 are as follows.
Daily use: 300 units
Lead time for re-supply: 5 – 20 days
Reorder quantity: 10,000 units
What should be the reorder level for this stock item, to avoid the possibility of inventory-outs?