Hockey Pakistan Limited (HPL) is engaged in the manufacturing of a single product H-2' which requires...

 

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Hockey Pakistan Limited (HPL) is engaged in the manufacturing of a single product "H-2' which requires a chemical 'AT". Presently, HPL follows a policy of placing bulk order of 60,000 kg of AT. However, HPL's management is presently considering to adopt economic order quantity model (EOQ) for determining the size of purchase order of AT. Following information is available in this regard: i. Average annual production of H-2 is 45,600 units. Production is evenly distributed throughout the year. ii. Each unit of H-2 requires 10 kg of AT. Cost of AT is Rs. 200 per kg. 5% of the quantity purchased is lost during storage. iii. Annual cost of procurement department is Rs. 2,688,000. 65% of the cost is variable. iv. AT is stored in a third party warehouse at a cost of Rs. 6.25 per kg per month. v. HPL's cost of financing is 8% per annum. Required: a) Calculate economic order quantity. b) Supplier of AT has offered a discount of 5% quantity per order is increased to 120,000 kg. Advise whether HPL should accept the offer. Hockey Pakistan Limited (HPL) is engaged in the manufacturing of a single product "H-2' which requires a chemical 'AT". Presently, HPL follows a policy of placing bulk order of 60,000 kg of AT. However, HPL's management is presently considering to adopt economic order quantity model (EOQ) for determining the size of purchase order of AT. Following information is available in this regard: i. Average annual production of H-2 is 45,600 units. Production is evenly distributed throughout the year. ii. Each unit of H-2 requires 10 kg of AT. Cost of AT is Rs. 200 per kg. 5% of the quantity purchased is lost during storage. iii. Annual cost of procurement department is Rs. 2,688,000. 65% of the cost is variable. iv. AT is stored in a third party warehouse at a cost of Rs. 6.25 per kg per month. v. HPL's cost of financing is 8% per annum. Required: a) Calculate economic order quantity. b) Supplier of AT has offered a discount of 5% quantity per order is increased to 120,000 kg. Advise whether HPL should accept the offer.

Answer rating: 100% (QA)

a To calculate the economic order quantity EOQ we can use the formula EOQ sqrt2DSH Where D Annual de... View the full answer