No. of orders in Material Control Chapter of Costing
This query is : Resolved
29 September 2016
annual requirement = 17,200 kgs. Ordering quantities = 1,000 kgs. While calculating total cost what should I take as number of orders in a year? 17,200/1000 = 17.2 or 18? Some problems in study material take the numbers as what computed exactly whereas some take after rounding it off. (e.g 17.2 as 18, 9.2 and 10 etc.)
I know that an order cannot be placed in fraction but some solutions in study material take it in fraction while some rounded it off to the next integer. An uniformity in solutions should be maintained. What should I follow? Please help. I am confused.
29 September 2016
what are you interested in? Finding out total cost...right?
Have you ever worked out the total cost with the number of orders17.2 as well as 18?
Have you ever worked out the total cost with the number of orders17.2 as well as 18?
29 September 2016
yes I have worked out with both the numbers. there is a difference in total cost between two answers.
03 October 2016
See, let me try to explain the concept.....ok?
Economic Order Quantity formula derives the answer using DERIVATIVE principles where "Ordering cost" equals "the inventory carrying cost". I hope you know this. If not, please keep this in mind always.
Now going along with your example......
let me assume Ordering cost per order = INR 99.00 and cost per unit =INR 23.496 and rate of interest as 15% (This makes the EOQ=1000...am i right?)
Taking 17.8 as answer......ordering cost comes to 1762.20 as also inventory carrying cost at 1762.20, making a total as 3524.40.......ok?
Now taking 18 as answer.... ordering cost comes to 1782 as against inventory carrying cost at 1742.62, making a total as 3524.62....is it fine? Are you getting it?
Now my question to you is that the difference between two answers being 22 paise.....do you consider the said difference of 22 paise as difference or not?
Economic Order Quantity formula derives the answer using DERIVATIVE principles where "Ordering cost" equals "the inventory carrying cost". I hope you know this. If not, please keep this in mind always.
Now going along with your example......
let me assume Ordering cost per order = INR 99.00 and cost per unit =INR 23.496 and rate of interest as 15% (This makes the EOQ=1000...am i right?)
Taking 17.8 as answer......ordering cost comes to 1762.20 as also inventory carrying cost at 1762.20, making a total as 3524.40.......ok?
Now taking 18 as answer.... ordering cost comes to 1782 as against inventory carrying cost at 1742.62, making a total as 3524.62....is it fine? Are you getting it?
Now my question to you is that the difference between two answers being 22 paise.....do you consider the said difference of 22 paise as difference or not?
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