Question # 2: (Marks 5)

The purchasing manager of a manufacturing company suspects that it is not buying a particular part in the most economical way. A financial analysis shows that:

• Each item costs PKR7.20

• The annual stock holding costs are 17%

• Each order costs PKR 55 to place (including follow up)

• The average annual demand is 9200 components

Required:

1. The economic order quantity

2. The number of days this supply would last (Assume 1 year = 265 days)

3. the number of orders per year

4. the minimum total cost per year