DEC 2018

QUESTION 2

B. Nyonya Kitchen is an online entrepreneur who specializes in making “Kuih Keria”. One of the
ingredients used to produce “Kuih Keria” is a special mix flour costing RM3.00 per kg. A half dozen of
“Kuih Keria” requires 0.5 kg of special mix flour. Total annual demand is 2,000 dozen of “Kuih Keria”.
She incurs RM6.00 to place an order and RM0.60 per kg per annum for holding cost.

Required:

i. Tabulate the relevant total costs if 100, 200, 400 kg of the special mix flour were ordered.

(6 marks)

Order Size 100 200 400

No of order 2,000/100 2,000/200 2,000/400
= 20 = 10 =5
Ordering Cost 20 x RM 6.00 10 x RM 6.00 5 x RM 6.00
= RM120 = RM60 = RM30
Average stock 100/2 200/2 400/2
= 50 = 100 = 200
Holding Cost (RM) 50 x RM 0.060 100 x RM 0.60 200 x RM 0.60
= 30 = 60 = 120
Total Cost (RM) RM120 + RM30 RM60 + RM60 RM30 + RM120
= RM150 = RM120 = RM150

ii. Based on your answer in B (i), determine the order size and economic order quantity (EOQ) that
minimizes the total cost.

(1 mark)

(Total: 24 marks)

Order Size 100 200 400

No of order 20 10 5
Ordering Cost 120 60 30
Average stock 50 100 200
Holding Cost (RM) 30 60 120
Total Cost (RM) 150 120 150
EOQ is at 200kg at the lowest cost of RM120.
JUNE 2018

QUESTION 2

B. Secret Cake House concerns about the inventory level of the main ingredient in producing cakes
that is cake flour as the price of the cake flour keeps increasing due to inflation. The cake flour is
currently ordered in quantities of 200 kgs per order at a cost of RM5.00 per kg. In order to produce a
cake, 0.5 kg of cake flour is required. The demand for the cake is constant at 2,000 units every year.
In preparing the order, the company incurred RM125 for freight cost per order. Immediately after
receiving the cake flour, Secret Cake House insured the cake flour at 4% of the inventory value in
order to avoid extra cost of damaged cake flour in its storage house. The storage cost for the cake
flour is RM0.80 per kg.

Required:

i. Compute the Economic Order Quantity (EOQ) for the cake flour.

Demand (Cake flour) = 2,000 units x 0.5kg

= 1,000 kg

Ordering cost = RM 125

Storage cost = (47% X RM 5.00) + RM 0.80

= RM 1

EOQ = √ 2 x D x O / C

= √2 X 1,000 kg x RM 125 / RM 1

= 500kg

ii. Compute the total costs if the company orders the materials at EOQ.

Ordering cost = D / EOQ x O

= 1,000 / 500 × RM 125

= RM 250

Average stock = Q / 2

= 1000 kg / 2

= 500kg

Holding cost = EOQ / 2 x C

= 500 / 2 x RM 1

= RM 250

Total cost = Ordering Cost + Holding cost

= RM 250 t RM 250

= RM 500
iii. Explain two (2) assumptions of EOQ.

• Transport cost are independent of quantity or timing of orders.

• Lead times for delivery should be known.

(7 marks)

(Total: 24 marks)
JUNE 2019

QUESTION 2

B. Tumpik Restaurant is a famous restaurant in Mukah which specializes in selling the local pancake
using the raw sago. It operates 300 days in a year. The restaurant requires at least 25 kg of raw sago
every day to produce the local pancakes. The daily consumption of raw sago is between 120 kg - 200
kg. Each kilogram of raw sago cost RM5.00 and estimates the holding cost is 10% of the purchase
price. The freight cost is RM1.00 per order to deliver the raw sago from the suppliers to the
restaurant. The ordering will take about 3 - 5 days.

Required:

Calculate the followings inventory control level for raw sago:

i. Economic Order Quantity (EOQ)

EOQ = √ 2 x D x O / C

= √ 2 x (25kg x 300) x RM 1.00 / (10% X RM 5)

= √ 2 x 7,500 X 1.00 / RM 0.50

EOQ = 173.21 kg ≈ 173kg

ii. Reorder Inventory Level

Reorder Inventory Level = Max consumption x Max Reorder Period

= 200 kg x 5 days

= 1,000 kg

iii. Maximum Inventory Level

Maximum Inventory level = Reorder level - (Min consumption × Min reorder Period) + EOQ

= 1,000kg – (120kg x 3days) + 173kg

= 1,000kg - 360kg + 173 kg

= 813 kg

iv. Minimum Inventory Level

Minimum Inventory Level = Reorder level - (Average consumption x Average Reorder period)

= 1,000kg – [(200kg + 120kg) / 2] x [(3days + 5days) / 2]

= 1,000kg - (160kg X 4 days)

= 1,000kg - 640kg

= 360 kg

(7 marks)

(Total: 24 marks)
JULY 2020

QUESTION 2

B. Kerawit Maju Sdn Bhd manufacture ‘Sambal Berapi’ located in Tuaran, Sabah. They
normally produced 320,000 unit sambal annually. ‘Sambal Berapi’ requires 0.04 kilogram
of shrimp paste for every unit of ‘Sambal Berapi’. The price paid for the shrimp paste
cost at RM18 per kilogram. The administration cost to place an order is RM10 and
delivery cost is RM40 per order. The carrying cost of the shrimp paste is 10% of the
purchase price while the breakage cost is estimated at RM0.20 per kilogram. Kerawit
Maju Sdn Bhd is planning to use economic order quantity model for the current year.
Required:

i. Calculate the Economic Order Quantity (EOQ) of the shrimp paste using the
formula method.
ii. Calculate the total cost (carrying and ordering cost) if Kerawit Maju Sdn Bhd were
to order the shrimp paste at EOQ.

(7 marks)
(Total: 24 marks)

Demand = 320,000 unit x 0.04kg

= 12,800 unit

i . Economic Order Quantity (EOQ)

EOQ = √ 2x D x O / C

= √ 2 x 12,800 x (RM10 + RM40) / (10% X RM 18) + RM0.20

= √ 2 x 12,800 x RM50 / RM1.80 + RM0.20

EOQ = 800 units

ii. The total cost (carrying and ordering cost).

Total starring cost = Average Stock x storing cost per unit

= EOQ / 2 x C

= 800 / 2 X RM2.00

= RM800

Total ordering cost = No of orders x ordering cost per order

= D / EOQ x O

= 12,800 / 800 x (RM40 + RM10)

= 12,800 / 800 x RM50

= RM800
Total Cost = RM800 + RM800

= RM1, 600