I am Lathika J Shetty, B.E , M.

Tech, Cisco Certified, IELTS

8+ years of rich experience in teaching field in India and Abroad
Subject expertise: All Computer Science related subjects, Maths, Science, English and
Management subjects (Primary students till Master level students)
I believe that my strongest skill is understanding each student’s requirement
thoroughly and handling them in a unique way so that each feels comfortable.
Every theory concept will be followed by case study/ examples/ worksheet with both
questions and answers. Customized as per your requirements. So just relax and get
your work done by me.
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Email: WRITE2LATHIKA@GMAIL.COM

Here is my Sample activity sheet:

Starting with Theoretical Explanation and then followed by
Practical real life application.

Inventory Cost Analysis Technique

How to minimize the inventory cost?

Solution: ECONOMIC ORDER QUANTITY (EOQ model)

Inventories are assets of the firm, and as such they represent an

investment. Because such investment requires a commitment of funds,
therefore a firm has to maintain inventories at the correct level. If they
become too large, the firm loses the opportunity to employ those funds
more effectively. Similarly, if they are too small, the firm may lose sales.
Thus, there is an optimal level of inventories.The EOQ is a model that is
used to calculate the optimal quantity that can be purchased to minimize
the cost of both the carrying inventory and the processing of purchase
orders. It is calculated by the formula below

2SD
Q=
H
 Where Q= Economic Order quantity (How much shall we order (order size?)
S= Ordering cost(shipping cost)
H=Holding cost/ carrying cost
D= Demand annually (consumption during the year)

Number of times to order is given by the formula:

N= D/Q

When should you place the order? (R) is given by the formula:
R= L* D L= Lead time to receive the order and D= Demand

Finally, the analysis on Total cost can be made as follows:

Total cost= P*D+S(N)+H(Q/2)

Where P= cost per unit

D= demand annualy
S= ordering cost
N=Number of times to order
H= Holding cost
Q= Order quantity

Activity
Inventory Management

Minimizing Inventory Cost: EOQ model for Construction materials Project

Practical task question: Consider that your role in ABC construction materials company
is Inventory analyst. The Procurement manger will ask you to Perform EOQ analysis
(Economic Order Quantity) for the company’s Construction Inventory Items with given
inputs. The total time given to you to perform this task is 4 hours. Being an Inventory
analyst how would you submit/produce the EOQ analysis report to your Procurement
manager for the given inputs?
SI.No Item name Annual Ordering Cost Annual Unit Lead time to
Demand (shipping Holding cost price receive the
/transportation) (Carrying cost (OMR) order(days)
(OMR) in the
inventory)
(OMR)
1 Cement 23,000 85.000 5.000 110.000/ 10
bags bag

2 Metal 282 bags 350.000 10.000 550.000/ 6

Aggregates bag
3 Steel 240 tons 210.000 15.000 250.000/ 8
ton

4 Bricks 4500 2.000 1.000 5.000/ 9

bricks Piece

Sample template for performing the Practical task:

EOQ analysis for the above need to be performed in MS Excel application showing
following scenarios:
Sheet 1: Practical task Question as above need to be typed.
Sheet 2: Rename the Sheet 2 as Cement and show the EOQ analysis for this item,
which should show the result summary of:
i) EOQ (how much to order / order quantity/ order
size)
ii) N (Number of times to order in a year)
iii)R/ ROP (ReOrder Point) when to place the
next order?
iv)Show how EOQ minimizes total Inventory
cost? (you can use graph/ table to summarize this)

Sheet 3, Sheet 4, Sheet 5: Rename the Sheet 3 as Metal Aggregates, Sheet 4 as Steel
and Sheet 5 as Bricks and perform the same task as done for Cement
 Sheet 6(optional): Produce the summary for all the above 4 construction site
inventory items in terms of graph or table.

“Add your creativity for summarizing the result in each of the sheets”

ANSWER: refer excel file.

1) Cement:
i) EOQ= 884 bags
ii) N= 26 times annually
iii) R/ ROP= 630 bags
iv) Inventory cost analysis: How EOQ model is best??
Case 1: using EOQ(Q= 884 bags)
Show this cost trade – offs

Total Inventory cost= 2534420 OMR ( minimizes the

using Graph or tables

Inventory cost when compared with case2 and case 3 , so

here we conclude that applying EOQ for order size analysis
is BEST)
Case 2: Let Q = 700 bags
Total Inventory cost= 2534555 OMR ( 135 rials more than
EOQ model)

Case 3 : Let Q= 900 bags

Total Inventory cost= 2534460 OMR (40 rials more than

EOQ model)