MTH601

Assignment # 01
Student Name: Gulnaz Shafqat
Student Id: bc200411918

Question # 01:
If the production of an item is an instantaneous with storage cost of Rs.5 per
item per month. Other clerical and administrative costs associated to it are of
Rs.30 per cycle. Find the best time for replacement provided that its demand
is Rs.250 units of items per month.

Solution:
To find the best time for replacement in inventory management, you can use the
economic Order Quantity Model (EOQ). The EOQ Model helps determine the
optimal order quantity that minimizes the total inventory costs considering both
ordering costs and holding Cost.

The EOQ Formula is given by:

EOQ=Q¿ =
√ 2 C2 D
C3

Where:
 D isthe demand ( 250units per month ) ,
 C 2 is the orderingcost per order ¿
 C 3 is the holding cost per unit per year ¿

Student Name: Gulnaz Shafqat

Student Id: bc200411918
 multiplied by 12 for a year .(5 ×12=60)

Let’s calculate:
Q¿ =
√ 2 C2 D
C3

Q¿ =
√
2 ×30 ×250
5

Q¿ =
√
15000
5
Q =√ 3000=54.77
¿

¿
Q ≈ 55 Units
Now,
Find the Time between orders (TBO) using the formula:
¿
Q ¿
TBO=T =
D
¿ 55
T= =0.22
250
So the best time for replacement is every 0.22 month.

Question # 02:

Demand for an item in a company is 5,000 units per year and company
can produce at a rate of 1500 units per month .Cost of ordering is
Rs.800 per setup and holding cost is 20 per unit year , the shortage cost
is 1000 per unit per year if optimum manufacturing quantity is 1400
then find the following

a.Time between orders

b.Number of orders per year

Student Name: Gulnaz Shafqat

Student Id: bc200411918
Solution:
D=5000 Units/year

R=1500Units/month

C2=Rs.800

C3=20 Units/year

C4=1000 units/year

Optimum manufacturing Quantity=Q*=1400

Calculations:

a. Time Between Orders

¿
¿ Q
t=
D

¿ 1400
t= =0.28
5000

b.Number of orders per year

5000
Number of orders per year = 1400
=3.57 ≈ 4

Time between order is 2.28

Number of order per year is approximtely 4.

Student Name: Gulnaz Shafqat

Student Id: bc200411918