ABC Ltd, a car manufacturer, aims to produce and sell high-quality cars at reasonable prices but...

 

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ABC Ltd, a car manufacturer, aims to produce and sell high-quality cars at reasonable prices but is currently concerned about the storage cost of an engine-related part called UK10, which includes insurance, interest, and space cost. This automotive part is purchased from an outsider supplier semi-annually. The data related to UK10 are as follows. 12,000 units annual usage quantity minimum order quantity 1,000 units £3 cost per unit UK10 is replenished instantly and depleted evenly throughout the year. On average, half of the amount purchased is held in inventory. The cost of storage is 20% of the purchase price. The cost of placing and receiving an order is estimated at £20 per order. (b) You are required to: (i) Tabulate the costs of holding and ordering UK10 for each level of orders from one to twelve placed per year. (12 marks) (ii) Based on the analysis conducted in (b) (i), identify the number of orders and the order quantity that would minimise the costs of holding and ordering UK10. (2 marks) (iii) Calculate the economic order quantity of UK10 using the EOQ formula, and compare the result with the one in (b) (ii). (2 marks) Discuss whether the economic order quantity derived from the formula is a feasible option for this company. (2 marks; max 70 words) (iv) Calculate the percentage saving on the annual cost, which could be made using the economic order quantity derived from the tabulation method (i.e., (b) (ii). (2 marks) (v) Suggest two approaches that could be introduced to reduce the present cost of ordering UK10. (4 marks; max 140 words) ABC Ltd, a car manufacturer, aims to produce and sell high-quality cars at reasonable prices but is currently concerned about the storage cost of an engine-related part called UK10, which includes insurance, interest, and space cost. This automotive part is purchased from an outsider supplier semi-annually. The data related to UK10 are as follows. 12,000 units annual usage quantity minimum order quantity 1,000 units £3 cost per unit UK10 is replenished instantly and depleted evenly throughout the year. On average, half of the amount purchased is held in inventory. The cost of storage is 20% of the purchase price. The cost of placing and receiving an order is estimated at £20 per order. (b) You are required to: (i) Tabulate the costs of holding and ordering UK10 for each level of orders from one to twelve placed per year. (12 marks) (ii) Based on the analysis conducted in (b) (i), identify the number of orders and the order quantity that would minimise the costs of holding and ordering UK10. (2 marks) (iii) Calculate the economic order quantity of UK10 using the EOQ formula, and compare the result with the one in (b) (ii). (2 marks) Discuss whether the economic order quantity derived from the formula is a feasible option for this company. (2 marks; max 70 words) (iv) Calculate the percentage saving on the annual cost, which could be made using the economic order quantity derived from the tabulation method (i.e., (b) (ii). (2 marks) (v) Suggest two approaches that could be introduced to reduce the present cost of ordering UK10. (4 marks; max 140 words)

Answer rating: 100% (QA)

Primary Goal of Adopting Economic Order Quantity System Economic Order Quantity refers to the size of an order for which the ordering costs and storag... View the full answer