Kopla Ltd. manufactures a product X. To produce one unit of finished product, 4 kg of raw material is required. The sales department has estimated an annual demand of 5,00,000 units. Stock position at the beginning of th

CS Professional · Financial, Treasury and Forex Management · PYQS · December 2018
Kopla Ltd. manufactures a product X. To produce one unit of finished product, 4 kg of raw material is required. The sales department has estimated an annual demand of 5,00,000 units. Stock position at the beginning of the year is as below: Product X: 20,000 units Raw material: 40,000 kgs To place an order the company has to spent ₹ 1,500. The company is financing its working capital using a bank cash credit @ 12%. Product X is sold at ₹ 1,040 per unit, material is purchased at ₹ 150 per kgs. Compute: Number of orders placed in a year.

Answer & Explanation:

(b) Number of orders placed in a year Annual production of product X = Annual demand - opening stock = 5,00,000 - 20,000 = 4,80,000 units Annual requirement of raw materials = (annual production * material required per unit) - opening stock of material = (4,80,000 * 4) - 40,000 = 19,20,000 - 40,000 = 18,80,000 kg EOQ = 17,701 kg (from previous calculation) No. of orders placed in a year = Annual requirement / EOQ = 18,80,000 / 17,701 = 106 orders per year (approx)

Topics: Working Capital Management

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