A company manufactures a product from a raw material, which is purchased at Tshs. 5,400...
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Accounting
A company manufactures a product from a raw material, which is purchased at Tshs. 5,400 per kilogram. The company incurs a handling cost of Tshs. 3,500 plus freight of Tshs. 4,000 per order. The incremental carrying cost of inventory of raw material is Tshs. 500 per kg per month. In addition, the cost of working capital finance on the investment in inventory of raw material is Tshs. 8,000 per kg per annum. The annual production of the product is 9,450,000 units and 2 units are obtained from one kilogram of raw material.
Required: (i) Calculate the economic order quantity of raw materials.
(ii) Calculate Total Annual Cost of inventory
(iii)Advise, how frequently should orders for procurement be placed.
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