QUESTION 2

a. Material purchasing is an essential part in manufacturing companies. Explain the process of material purchasing chronologically. (5 marks)

b. Prieto Stone Company consumes 60,000 cases of crackers per year. The crackers cost $4 per case, and each order incurs a delivery cost of $200. Money spent on crackers has an alternative investment with annual interest of 24%.

Calculate the economic order quantity i.e.

i. the optimal order size (2 marks)

ii. total orders required during the year (1 mark)

iii. total carrying cost (1 mark)

iv. total ordering cost for the year. (1 mark)

c. What is the importance of purchasing material basing it on Economic Order Quantity? (3 marks)

d. The following information was obtained from the books of Wilson Wholesalers Limited

Consumption per week: Minimum 600 units

Normal 800 units

Maximum 1,200 units

Re-order period: Minimum 2 weeks

Normal 3 weeks

Maximum 5 weeks

Re-order quantity 5,000 units

Required to calculate the following

i. Re-order level (1 marks)

ii. Minimum stock level (1 mark)

iii. Maximum stock level (1 mark)

iv. Average stock level (1 mark)

e. Why is it not advisable to purchase material based on personal judgement in relation to the order quantity?