AFRICA NAZARENE UNIVERSITY.

NAME: WANYOIKE SHARON NJOKI

ADM NO : 20S01APS001
UNIT NAME: INVENTORY MANAGEMENT.
UNIT CODE: PSM 206.
LECTURER: GORDON OTILA
ASSIGNMENT

QUESTION.
Rhene logistics has established that annual quantity for a given item is 4000 units. The cost of
ordering is Ksh 6000 and the price per unit is Ksh 200. Inventory holding cost % is 15% of
purchasing cost.
Formulate the best inventory policy for this item.
a) Determine the EOQ.
b) Determine the total cost.
Solution

EOQ =
√ 2 × D ×Co
Cp × j
D=4000 units.
Co= Ksh 6000
Cp= Ksh 200.
J= 15%

√ 2 × 4000 ×6000
200× 0.15

EOQ= 4000

B) Total cost= purchase cost + ordering cost + holding cost.

TC = [(D×Cp) + (D/Q×Co) + (Q/2 × Cp × j)]

[(4000×200) +(4000/4000×6000) + (4000/2×200×15/100)]

TC= 800,000+6000+60,000= 866,000

TC= Ksh 866,000