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PUNJNAD Textile Industries (PTI) – a privately owned textile spinning unit is engaged in yarn manufacturing
since its incorporation. The unit produces high quality yarn which is sold out immediately like a hot cake. 5
years back, Mr. Entrepreneur - the owner of PTI had signed a contract with a local cotton supplier – Mr.
Supplier for supplying fine quality cotton bails to PTI as per specified requirement for five years at a cost of
Rs. 500 per bail. PTI estimated its requirement of 12,500 cotton bails per year for smooth operations. Both the
owner and the supplier were happy for signing the contract and a feeling of earning the good amount of profit.
Mr. Entrepreneur also estimated Rs. 2,000 as cost on issuing every new order and 10% as carrying and storage
cost associated with the inventory.
Mr. Supplier successfully supplied the cotton bails to PTI for 4 years but in 5th year of the contract, due to
heavy flood, cotton crops could not be reaped at full. But, due to the signed contract with PTI, Mr. Supplier
managed to supply cotton bails to PTI as per the agreed specification and completed the contract period
This year, due to bumper cotton crop in the region, Mr. Supplier has desired to renew the cotton supply
contract with the condition to supply 25% extra bails over the previous contract for the next 5 years. Mr.
Entrepreneur as satisfied with the cotton quality supplied earlier is considering this new option and has called
upon his manager costing – Mr. Management Accountant to compare the proposal with the contract just
ended. The manager has advised him to reject the proposal as extra quantity purchased would increase the
carrying and storage cost by 2%.
Being a student of cost & management accounting you are asked to calculate the following:
1. The most economical order quantity in case of both the proposals (current as well as previous)
2. The total ordering cost which has to be borne by PTI on both the proposals (current as well as
3. The total Carrying cost which has to be borne by PTI on both the proposals (current as well as
4. Using the order quantities, total ordering cost and total carrying cost calculated above; calculate the
total cost for both proposals. Also suggests the most suitable proposal for PTI on total cost basis.

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Replies to This Discussion

imran 62500 for previous & 78125 for current..

anyone there knows book main jo 80000 units hain or edhr ap 12500 units ko 5 saal main convert kr rhay ho i think 12500 units say hi theek solve h ga kykay humain book ko follow krna chahy

khalid book mein example di gai hai..samjhane k ko ap ne follow kerna hai jst for formulas & understanding of concept.... 

now come to assignment, agar ap dhayan se assignment question parho to proposal 5yrs ka hai... previous bhi & current bhi... aur hamein unho ne proposals ki calculations kerne ko bola hai so it will b of 5yrs....and ye baat MDB per instructo se confirm bhi ki gae hai k hum ne 5yrs ki hi kerni hai...

2236.1 ans 62500 req unit EQQ ma put karnay sa kaisay aya rizwan bhai plz tell me

thanks rizwan bhai i understand


Bhai plz ye bta dy k

EOQ = [(2x62500x2000)/(500x10/100)]^1/2 = 2236

Mujy boht preshani ho rhi hai q k 7812 answer a rha hai

Plz giv whole calculation of this formula

I am waiting your reply

Mahmood Ahmad

EOQ = [(2x62500x2000)/(500x10/100)]^1/2

= [(250,000,000 / 50)]^1/2




samjh gae??

+ ((( Mἷṩṩ ҭᾄὗʀᾄṩ ))) isi ko to step by step calculation kehte hain....i have said in every post that wt i have given is data & formulas.... us data ko formulas mein put karen & step by step calculation karen....& thats wt step by step calculation is...... agar ap direct answers likh den gi to they will grade ur assignment zero bcz wo pata chal jae ga k copied her calculation step by step karen....

+ ((( Mἷṩṩ ҭᾄὗʀᾄṩ ))) method 1 e hai....listen main post wo hai jis mein Data & formulas diya hua hai.... u have to put data in the formulas & step by step calculations kerti jaen & in the end apni final calculations meri di hui calculations se match ker lein....ok, got that???

jo dosri post hai wo usi ka hissa hai jis mein i have showed k values kaise formula mein put kerni hain.....simple...

bilkul bhi mushkil nahi hai + ((( Mἷṩṩ ҭᾄὗʀᾄṩ )))... hardly 10min ka kaam hai.... formulas mein data put karen & step by step calculations karen...simple....


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