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Topic: Control Over Material

Learning Objectives
: In this case student will be able to learn how Sensitivity of EOQ to changes in relevant ordering and carrying costs cost of prediction error.

Learning Outcomes: After going through this GDB, the learners are expected to apply their knowledge through economic order quantity to compare this cost to the annual relevant total costs that FRECH would have incurred.

Case:

FRECH Company’s annual demand for its only product, HT-025, is 10,000 units. FRECH is currently analyzing possible combinations of relevant carrying cost per unit per year and relevant ordering cost per purchase order, depending on the company’s choice of supplier and average levels of inventory. This table presents three possible combinations of carrying and ordering costs.

 Relevant Carrying Cost per Unit per Year Relevant Ordering Cost per Purchase Order Rs.10 Rs.400 Rs.20 Rs.200 Rs.40 Rs.100

Requirements:

1. For each of the relevant ordering and carrying-cost alternatives, determine (a) EOQ and (b) annual relevant total costs.

2. How does your answer to requirement 1 give insight into the impact of changes in relevant ordering and carrying costs on EOQ and annual relevant total costs? Explain briefly.

3. Suppose the relevant carrying cost per unit per year was Rs.20 and the relevant ordering cost per purchase order was Rs.200. Suppose further that FRECH calculates EOQ after incorrectly estimating relevant carrying cost per unit per year to be Rs.10 and relevant ordering cost per purchase order to be Rs.400. Calculate the actual annual relevant total costs of FRECH’s EOQ decision. Compare this cost to the annual relevant total costs that FRECH would have incurred if it had correctly estimated the relevant carrying cost per unit per year of Rs.20 and the relevant ordering cost per purchase order of Rs.200 that you have already calculated in requirement 1. Calculate and comment on the cost of the prediction error.

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### Replies to This Discussion

oka. . .

number of order = 10,000/894 = 11

total ordre cost=  400*11= 4400

ok thanks :)

number of order = 10,000/894 = 11

total order cost=  400*11= 4400

Total Carrying Cost= (894/2)x10= 4470
annual relevant total costs= 4400+4470.

you forget to put the % carrying cost which is 50% of unit cost....

sis mathy type se paste kesy krna ha GDB par

plz tell yeh Quantity ky amount 10000 khan sy li ap ny? questin mein to nhi hy

oho check first line.

FRECH Company’s annual demand for its only product, HT-025, is 10,000 units.

ye aap k 894.4 answer kaisay aya??? mera tu 400 aa raha ha pehlay walay ka???

JUST changes the values you can easily calculate

other two

Annual relevant total costs= (4400 +4470) Rs

Annual relevant total costs=8870 Rs

and

Annual relevant total costs= (4500 +4480) Rs

Annual relevant total costs=8980 Rs

dear ap logo nay unit cost tu dala he nahi formulay may EOQ k??? Why is that???

2nd ka b bata dein uski samj e ni aa rhe ha baqi ho gy hain :/