Bharati Fibre Products produces a special fibre at the rate of 5,000 metres per hour. The fibre is used in other products made by the company at the rate of 20,000 meters per day. Cost of fibre is ₹5 per metre. The inven

CS Professional · Financial, Treasury and Forex Management · PYQS · June 2015
Bharati Fibre Products produces a special fibre at the rate of 5,000 metres per hour. The fibre is used in other products made by the company at the rate of 20,000 meters per day. Cost of fibre is ₹5 per metre. The inventory carrying cost is 25% and set-up costs are ₹4,050. Compute the optimum number of cycles required in a year for the manufacture of this special fibre. Working hours per day are 8 hours. Assume 365 days in a year.

Answer & Explanation:

Production rate (p) = 5000 m/hr Usage rate (r) = 20,000/8 = 2,500 m/hr Inventory carrying cost (C c ) = 25% of ₹5 = ₹1.25 Set-up cost (C o ) = ₹4,050 Annual requirement (A) = 20,000 * 365 = 73,00,000 m EBQ = = = 307584.13 Optimal no. of cycle = A / EQB = 73,00,000 / 307584.13 = 23.73 ≈ 24 cycles

Topics: Working Capital Management

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