Submitted To

Dr Asif Akhtar
Dr Lamay Bin Sabir

Submitted by

Mohd Aaris
Roll No. 20MBAA-08
Enrol. No. GJ1407

Operation Management Assignment

MBA1C15

Q1. A pharmaceutical company uses a chemical compound which must be kept

in an environment where both the temperature and humidity can be controlled.
It uses 800 Kg per month of the chemical, estimates the holding cost to be X%
of the purchase price and estimated order costs to be $Y per order. The cost
schedules of two suppliers are as follows:

Vendor 1 Vendor 2
 Quantity Price/Kg Quantity Price/Kg
1-499 Rs.17.00 1-399 Rs.17.10
500-999 Rs.16.75 400-799 Rs.16.85
1000+ Rs.16.50 800-1199 Rs.16.60
1200+ Rs.16.25

a. What is the economic order quantity for each supplier?

b. What quantity should be ordered, and which supplier should be used?
c. What is the total cost of the most economic order size?
d. What factor(s) should be considered besides total cost?
X – Last two digits of your University enrollment number. For e.g.: if your
enrolment no is BB-5519, then X = 19%.
Y – Faculty Roll Number. For e.g. If your faculty roll number is 19MBAA 40,
then Y is $40.
Solution :
Given: Monthly demand = 800 Kgs
Annual Demand(D)= 800*12= 9600 Kg
I = X%= 7% [My Enrol. No. GJ1407]
S = Y = Rs.8 [My Faculty No. 20MBAA08]

A) What is the economic order quantity for each supplier?

Solution: The formula for EOQ is
EOQ=√2*D*S/I*P

For Vendor 1
Quantity Price / Kg Calculation EOQ
1-499 Rs. 17 √2*9600*8/0.07*17 359 units
500-999 Rs. 16.75 √2*9600*8/0.07*16.7 362 units
5
1000+ Rs. 16.50 √2*9600*8/0.07*16.5 365 units
0

EOQ of Vendor 1 is 359 units.

For Vendor 2
Quantity Price / Kg Calculation EOQ
1-399 Rs. 17.10 √2*9600*8/0.07*17.1 358 units
0
400-799 Rs. 16.85 √2*9600*8/0.07*16.8 361 units
5
800-1199 Rs. 16.60 √2*9600*8/0.07*16.6 364 units
0
1200+ Rs. 16.25 √2*9600*8/0.07*16.2 367 units
5

EOQ for Vendor 2 is 358 units.

B) What Quantity should be ordered and which supplier should be used?

Solution: Total Cost Formula
(D*P) + (Q’/2*I*P) + (D/Q’*S)

For Vendor 1
 Total cost for 359 units
= (9600*17) + (359/2*0.07*17) + (9600/359*8)
=163200 + 213.605 + 214
=Rs. 163627.605

 Total cost for 500 units

= (9600*16.75) + (500/2*0.07*16.75) + (9600/500*8)
=160800 + 293.125 + 153.6
=Rs. 161246.725

 Total cost for 1000 units

= (9600*16.50) + (1000/2*0.07*16.50) + (9600/1000*8)
=158400 + 577.5 + 76.8
=Rs. 159054.3
For Vendor 1 Quantity ordered should be 1000 units.

For Vendor 2
 Total cost for 358 units
= (9600*17.10) + (358/2*0.07*17.10) + (9600/358*8)
= 164160 + 214.263 + 214.525
 = Rs. 164588.788

 Total cost for 400 units

= (9600*16.85) + (400/2*0.07*16.85) + (9600/400*8)
=161760 + 236 + 192
= Rs. 162188

 Total cost for 800 units

= (9600*16.60) + (800/2*0.07*16.60) + (9600/800*8)
= 159360 + 465 + 96
= Rs. 159921

 Total cost for 1200 units

= (9600*16.25) + (1200/2*0.07*16.25) + (9600/1200*8)
= 156000 + 682.5 + 64
= Rs. 156746.5
For Vendor 2 the Quantity ordered should be 1200 units.

C) What is the total cost for most economic order size?

Solution: Rs 1,56,746.5 is the total cost for most economic order size.

D) What factors should be considered besides total cost?

Solution: Competitors
Market demand
Customers
Supply cost