PROBLEM 1:

Jason owns a fish shop where he sells an exotic variety of tuna fish which he imports from Japan.

Jason refrigerates the fish in a cold storage facility near his shop that charges him a fixed annual fee of P1000
and variable charge of P5 per day for each fish container that is stored.

Every morning, Jason brings fish from the cold storage to his shop for sale. Jason estimates that he incurs
P10,000 electricity cost each year on refrigerating the fish inside his own shop.

Jason incurs the following ordering costs:

Delivery charges of P10,000 per delivery

Import duties of P300 per carton
Custom fees of P200 per order
Import license fee of P150 per annum
Jason currently imports fish by placing one order of 20 cartons every month. Each carton costs P2,000.

Jason is wondering if he can save inventory costs by adopting EOQ model.

a) Calculate the current annual total inventory costs

b) Calculate the economic order quantity
c) Calculate the annual total inventory costs if EOQ is used

PROBLEM 2:

Plot Co sells Product P. The annual demand is 300,000 units and an order for new inventory is placed each
month. Each order costs P267 to place. The cost of holding Product P in inventory is 10 cents per unit per
year. Buffer inventory equal to 40% of one month’s sales is maintained.

Required:

Calculate the following values for Product P:

(i) The total cost of the current ordering policy
(ii) The total cost of an ordering policy using the economic order quantity
(iii) The net cost or saving of introducing an ordering policy using the economic order quantity

PROBLEM 3:

FLG Co wishes to minimize its inventory costs. Annual demand for a raw material costing P12 per unit is
60,000 units per year. Inventory management costs for this raw material are as follows:

Ordering cost: P6 per order

Holding cost: P0·5 per unit per year

The supplier of this raw material has offered a bulk purchase discount of 1% for orders of 10,000 units or more.
If bulk purchase orders are made regularly, it is expected that annual holding cost for this raw material will
increase to P2 per unit per year.

Required:

Calculate the total cost of inventory for the raw material when using the economic order quantity.