Question

A stock has to supply 400 units of product every Monday to his customers. he gets the product at kshs 50 per unit from the manufacturer . The cost of ordering and transportation from the manufacturer is Kshs 75 per order . The cost of carrying inventory is 7.5% per year of the cost of the product . Find
1.The economic lot size
2.The total optimal cost (including the capital cost)
3.The total weekly profit if the item is sold for Kshs 55 per unit .

Answer 1

1. Economic lot size=  square root of (2 x D x S/H)

D=400 units *52 mondays=20800units

S=75 kshs

H=7.5% of 50kshs=3.75kshs

=square root of (2 x 20800 x 75/3.75)

= 912 units

2.

Total optimal cost=

912units*50=45600

912units*75=68400

912units*3.75=3420

total=117420kshs

3.

calculation of profit a week

considering 400 units are being sold:  

sales=400*55=22000kshs

less costs:

50*400=20000

profit=2000kshs

as number of orders is not given the profit is calulated before ordering and carrying cost