4. If the price of the material is RO 15 per unit and the annual consumption is 4000 units, the interest and store keeping charges are 20% of the value and the cost of placing of an order and receiving the goods is RO 60, how much material should be ordered at one time?
4. If the price of the material is RO 15 per unit and the annual consumption is 4000 units, the interest and store
keeping charges are 20% of the value and the cost of placing of an order and receiving the goods is RO 60,
how much material should be ordered at one time?
5. Alexander pump LLC uses about 75000 valves per year and the usage is fairly constant at 6250 units per
month. The valve cost of RO 1.50 per unit when bought in large quantities, and the carrying cost is estimated
to be 20% of average inventory investment on an annual basis. The cost to place an order and process the
delivery is RO18.
It takes 45 days to receive delivery from the date of an order and a safety stock of 3250 vales is desired.
You are required to determine.
a. The most economical order quantity and frequency of orders.
b. The most economical order quantity if the valves cost is RO 4.50 each instead of RO 1.50 each
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