There is effectively a buffer stock of 300 tins as in lead time of 1 day the paint shop will only use 200 tins. This buffer stock costs 300 ×0.25 = £75 per day to hold in store. The normal stock holding cost is 0.25 ×500 = £125 An order is made every 5 days so the average daily order cost is 100÷5 = £20 Total cost is therefore £75 + £125 + £20 = £220 per day The EOQ amount is = 400 (so ordering every 2 days) Cost is now £100 a day, a saving of £120 If only order when down to 200 will not incur a buffer stock cost. (b) At EOQ the product cost is £2000 per day giving a cost of £2100 If order 2000 the product cost is £1960. The order and stock cost will now cost £260 per day so total cost is £2220 which is more expensive. (c) If is the product cost this must be less than £1840 since + 260 = 2100, which means x x the cost per item should be less than £9.20. This represents a discount of 8% 6. = .2×10 = £2 h = 40 Cost = 80 ×10 + 20×80/40 + 2×40/2 = £880 If order 300 = .2×9.80 = £1.96 h Cost = 80 ×9.8+ 20×80/300 + 1.96×300/2 = £1083 If order 500 = .2×9.70 = £1.94 h
There is effectively a buffer stock of 300 tins as in lead time of 1 day the paint shop will only use 200 tins. This buffer stock costs 300 ×0.25 = £75 per day to hold in store. The normal stock holding cost is 0.25 ×500 = £125 An order is made every 5 days so the average daily order cost is 100÷5 = £20 Total cost is therefore £75 + £125 + £20 = £220 per day The EOQ amount is = 400 (so ordering every 2 days) Cost is now £100 a day, a saving of £120 If only order when down to 200 will not incur a buffer stock cost. (b) At EOQ the product cost is £2000 per day giving a cost of £2100 If order 2000 the product cost is £1960. The order and stock cost will now cost £260 per day so total cost is £2220 which is more expensive. (c) If x is the product cost this must be less than £1840 since x + 260 = 2100, which means the cost per item should be less than £9.20. This represents a discount of 8% 6. h = .2×10 = £2 = 40 Cost = 80 ×10 + 20×80/40 + 2×40/2 = £880 If order 300 h = .2×9.80 = £1.96 Cost = 80 ×9.8+ 20×80/300 + 1.96×300/2 = £1083 If order 500 h = .2×9.70 = £1.94