Page 465 - F2 - MA Integrated Workbook STUDENT 2018-19

Answers

Chapter 5

Example 1

A business uses 5,000 units of raw material per week and it takes 3 weeks to
receive the goods after the order has been placed. The business also keeps
additional inventory of 2,500 units in reserve.

Calculate the re-order level.

5,000 units × 3 weeks + 2,500 buffer inventory = 17,500 units

Example 2

A business uses 3,125 units of raw material per annum. It costs $20 to place
an order and $0.50 to hold one unit of inventory for one year.

Calculate the EOQ.

EOQ = 2 × 20 × 3,125 = 500 units
0.50

457