Question

In: Accounting

The annual sales of product Y of Govender Limited is 400 000 units. The purchase price...

The annual sales of product Y of Govender Limited is 400 000 units. The purchase price is R12 per unit. The carrying cost of product Y amounts to 30% of the unit purchase price. The ordering cost is R45 per order.

Required:

Use the information provided above by Govender Limited to calculate the:

2.1 Economic order quantity (EOQ).

2.2 Number of orders that need to be placed each year.

Jumbo Enterprises plans to borrow R1 000 000 for one year. The stated interest rate is 15% per annum.

Solutions

Expert Solution

Answer:- 2.1)- Economic Order Quantity = 10000 units

Explanation:-

Economic order quantity= √2*A*Cp/Ch

= √2*400000 units*$45 /($12 per unit*30%)

= 10000 units

Where:-

A = Annual demand

Cp= Cost to place a single order

Ch= Cost to hold one unit inventory for a year (ie- carrying cost)

2.2)- Number of orders that need to be placed each year= 40 orders.

Explanation-Number of orders per year = Annual demand/ Optimal order quantity(EOQ)

   =400000 units/10000 units

   = 40 orders


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