i. The cost of placing an order. ii. The cost of carrying inventory as a percentage of inventory iii. The carrying cost as a percentage of the total inventory value
QUESTION TWO
a) The Chisokone Company located in Chimwemwe manufactures typewriters called AK4 model
Z. The company has an average total inventory of K15, 000,000 and places 12,000 orders every
year. Order details are as follows:
Purchase department expenses……………………………..K400, 000
Stores warehouse personnel salary……………………......K400, 000
Obsolescence, spoilage, etc…………………………………K120, 000
Floor space charge related to stores activities…………….K260, 000
Cost of collecting materials…………………………………..K60, 000
Cost of receiving materials…………………………………...K70, 000
Cost of Inspection……………………………………………..K100, 000
Cost of material handling for warehousing activities………K300, 000
Cost of bill payment……………………………………………K170, 000
Interest…………………………………………………………..11.5%
Insurance charges………………………………………………1.9%
The company wants to buy a certain component, whose cost is K24 each and the annual
requirement is 34,560 units. Calculate the following:
i. The cost of placing an order.
ii. The cost of carrying inventory as a percentage of inventory
iii. The carrying cost as a percentage of the total inventory value.
iv. The economic order quantity.
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