MARVIN A.

GONZALES

PROBLEM 12-A13: RELATIONSHIP BETWEEN ECONOMIC ORDER QUANTITY AND

PURCHASE PRICE

Apriltag Corporation served notice to Djarum Merchandising (refer to problem 12-A12 for
details) that it would increase its price at the end of three quarters from P6,000 to the
following schedules:

End of quarter-P 7,000

End of two quarters-P8,000
End of three quarters-P9,000

The purchasing manager wanted to recalculate the economic order quantity and inventory
cost.

Required:

a. Calculate the economic order quantity for vacuum cleaners under the three purchase
prices.
Answer:
Purchase Price EOQ
7,000 212.29
8,000 226.78
9,000 223.61

b. How do the percentage increases in purchases prices compare with the percentage
in economic order quantity? Prepare the following summary.
Answer:
Purchase Price EOQ
Amount % Increase Quantity % Increase
6,000 0% 212.29 0%
7,000 16.67% 226.78 6.82%
8,000 14.29% 223.61 -1.40%
9,000 12.5% 222.11 -0.67%

c. Why does EOQ change with purchase price in that way?

Answer:
The higher the purchase price increases h the carrying cost per unit also increases
thus decreasing i the economic order quantity. It’s because EOQ minimizes
inventory cost while assuring the requirements are met.

SOLUTIONS:

2 x Annual Demand x Ordering Cost

a. EOQ=
√ Carrying Cost Per Unit
Given:
Annual Demand = 33,800; 45,000; 50,000; 55,000
Ordering cost = P800
Carrying cost = Purchase Price x 20%

End of Quarter – P6,000

2 x 33,800 x 800
EOQ=
√ 6,000(0.20)
= 212.29

End of Quarter – P7,000

2 x 45,000 x 800
EOQ=
√ 7,000( 0.20)
= 226.78

End of Quarter – P8,000

2 x 50,000 x 800
EOQ=
√ 8,000(0.20)
= 223.61

End of Quarter – P9,000

2 x 55,500 x 800
EOQ=
√ 9,000(0.20)
= 222.11