FIN622 Assignment No 01 Spring 2019 Solution & Discussion Due Date: 29-07-2019
The purpose of this activity is to develop skills in students related to inventory management.
This activity will help students to learn how to choose the best inventory management technique when multiple options are available.
An ABC food company is engaged in a business of selling each pack of French fries in 50 gram packaging. The company has annual sales of 30,000 kg of chips which amounts to 1,500,000packets of chips. The company purchases chips from a potato chips maker who is specialized in making chips and distributing in desired packet weight to its customer. It costs the company Rs 0.2 per packet to hold stock of packed chips in a warehouse. The company buys one packet of chips at Rs. 40 from the vendor. The company places different sizes of order and each order size costs around Rs. 150.
Manager of the company is required to maintain the certain level of inventory at which overall cost of inventory is minimized. However, he is supposed to analyze following two options for inventory management:
1. Manage inventory level by using Economic Order Quantity Model.
2. Accept the vendor offer of 4% discount on purchase price, if the minimum size of order is 30,000 Packets.
1. Calculate the per packet cost of chips by considering each above mentioned options
2. Calculate Annualized Saving and decide the optimal option for the company.
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