Question - A company manufactures a product from a raw material, which is purchased at Rs.60 per kg the company incurs a handling cost of Rs.360 plus freight of Rs.390 per order. The incremental carrying cost of inventory of raw material is Rs. 0.50 per kg.per month. In addition the cost of working capital finance on the investment in inventory of raw material is Rs.9 per kg per annum. The annual production is 100 000 units and 2.5 units are obtained from one kg of raw material. Required
1. Calculate the EOQ of raw material.
2. Advice how frequently should orders procurement be placed.
3. If the company propose to rationalize placement of orders on quarterly basis, what percentage of discount in the price of raw materials should be negotiated.