Question: 1 An organisation purchases 2000 components from a supplier every year. Each component costs 5,000, the internal cost of placing an individual order has been

1 An organisation purchases 2000 components from a supplier every year. Each component costs 5,000, the internal cost of placing an individual order has been estimated at 50 plus there is a delivery cost of 1,000 per order. The annual carrying cost for the organisation is 40%. Given that the Economic Order Quantity ( EOQ = 2DS /C ), comment upon the assumptions made within this formula and then apply it to calculate the optimum order quantity. [20 marks]

2 If the actual order quantity used increases by 10%, what will be the %age change in Total Stocking Cost? Explain why the two percentage changes are different [30 marks] Total Stocking Cost (TSC) = QC/2 + DS/Q

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