UNIVERSITI TEKNOLOGI MARA

(UiTM)

Assignment 1
November 2005 & March 2006

PREPARED FOR : ASSOC. PROF. WONG SEI VAN

LECTURER
QUANTITATIVE BUSINESS ANALYSIS (QMT 425)

PREPARED BY : MOHAMAD AZWAN BIN AYOP

BBA (HONS) FINANCE (BM222)
2007118507

November 2005
Question 1

Information from question:

D: 15,000
C : RM6.50
L : 3 days
Ch: 10% x RM6.5 =RM0.65
Co : RM15
Number of working day a year: 50 weeks ( 50 x7=350 days)
Number of day per week: 6 days

a)
i. Economic Order Quantity (EOQ)

2.D .Co 2 x15000 x15

EOQ=Q*= √ IC = √ 0.65

EOQ= 832.05 units

ii. Total Inventory Cost

D Q
TC= D.C+ Q
Co+ 2 Ch

15 , 000 832. 05
15 , 000×6 . 50+ (15 )+ (0 . 65)
TC= 832 .05 2

TC=RM 98,040.83

iii. Inventory cycle and reorder point:

D 15,000
Inventory cycle / number of order: Q = 832.05 = 18 times per year

ROP =Lxp
=3 x 50
= 150 units
b) Printco considering making A4 paper in house. Available information:
D=15,000
Cs: RM17.50
C : RM5.50
IC : RM0.55
p : 120 units

i. Optimal quantity for the production (EBQ)

2.D.Cs
EBQ  Q * p 
 d
IC 1  
 p

2×15000×17 .50
EBQ=Q∗p=

√
EBQ= 1279.20 units
(
0 .55 1−
50
120 )

ii. Annual Total Cost for the production

D Q  d
TC ( EBQ)  D.C  Cs  IC 1  
Q 2  p
15000 1279 .20 50
TC( EBQ )=15 , 000×5 .50+
1279 . 20
×17 . 50+
2 (
×0 . 55× 1−
120 )
TC= RM 82,910.41

iii. Printco Enterprise should continue with decision to manufacture their own
paper because Total cost are lower and it can save the firm :

RM98,040.83 – RM 82,910.41 = RM 15,130.42

APRIL 2006
Question 3
Available information:
D: 2000/ month = 2000 x 12 =24,000/year
C: RM25
IC/Ch: 0.15 x 25 =RM3.75
Co: RM40
Number of working day 20 days/month or 20 x 12= 240 days a year

a) Economic Order Quantity

2.D.Co
EOQ  Q* 
IC

2×24000×40
EOQ=Q∗¿
√ 3 . 75

EOQ= 715.54

b) Annual total cost associated

D Q
TC=D. C .+ Co+ IC
Q 2

24000 715 . 54
TC=24000×25+ ×40+ ×3 .75
715 . 54 2

TC= RM 602,683.28

c) The firm considering two more option:

Option 2
Take advantage of a 5% discount on minimum order of 4000 unit

2.D.Co
EOQ  Q* 
IC

2×24000×40
EOQ=Q∗¿
√ 3 . 56

EOQ= 734.4 Units  adjust to 4000 units

Then;

D Q
TC=D. C .+ Co+ IC
Q 2

24000 4000
TC=24000×23 . 75+ ×40+ ×3 . 56
4000 2

TC= RM577,360

Option 3
The firm manufature the component in house. Available information as follow:

C: 18
Cs : RM60
p : 150
IC / Ch : 0.15 x 18=RM2.7
d : 100 units

2.D.Cs
EBQ  Q * p 
 d
IC 1  
 p

2×24000×60
EBQ=Q∗p=

√
EBQ = 1788.85 units
(
2 .7 1−
100
150 )
Then;

D Q  d
TC ( EBQ)  D.C  Cs  IC 1  
Q 2  p

24000 1788. 85 50
TC( EBQ )=24000×18+
1788 . 85
×60+
2 (
×2. 7× 1−
150 )
TC = RM 433,609.97

The firm should manufacture the component because total cost for
manufacturing the component are lower compared to present order policy or
option 2 and firm can save RM 169,073.31 compared to present ordering policy.