Parkin Limited has budgeted to use 6,000 units of component Zed during the forthcoming year. Production...

  

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Parkin Limited has budgeted to use 6,000 units of component Zed during the forthcoming year. Production will be distributed evenly throughout the year. Assume the company does not carry any safety stock. The following additional information is available concerning component Zed: Cost of component Ordering costs Stock holding costs Order sizes available RM 40 per unit RM 400 per order 12% of the average stock value per annum 500; 1,000; 2,000; 3,000 and 6,000 units. REQUIRED (a) Produce a table showing the total annual ordering and stock holding costs of the component for each order size and identify the optimum order size in order to minimize total cost. (b) Use the EOQ formula to verify your answer to part (a) above. (16 marks) (6 marks) Parkin Limited has budgeted to use 6,000 units of component Zed during the forthcoming year. Production will be distributed evenly throughout the year. Assume the company does not carry any safety stock. The following additional information is available concerning component Zed: Cost of component Ordering costs Stock holding costs Order sizes available RM 40 per unit RM 400 per order 12% of the average stock value per annum 500; 1,000; 2,000; 3,000 and 6,000 units. REQUIRED (a) Produce a table showing the total annual ordering and stock holding costs of the component for each order size and identify the optimum order size in order to minimize total cost. (b) Use the EOQ formula to verify your answer to part (a) above. (16 marks) (6 marks)