FIN722 Assignment 2 Solution and Discussion

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SEMESTER Fall 2019
Corporate Finance (FIN722)
Assignment for Post Mid
Due Date: January 14, 2020
Topic: Inventory Management
Learning Outcome: After attempting the assignment, students will be able to
 Learn the concept of different costs involved in managing the inventory by a business
 Learn to work out total and per unit inventory cost
Background:
Marks: 20
Best Sports Limited (BSL) is renowned for manufacturing sport’s accessories. Company manufactures export quality sport’s bands, bags and gloves. To maintain the quality standards of their products, company is very much concerned about the quality of raw material used in production. After observing the annual demand of its products, it is estimated that production department requires 120,000 kg raw material on annual basis to fulfill the demand. For this, company short listed two of its best suppliers who quoted the following costs:
 Raw material Cost (Purchase Price): Rs. 130 / kg
 Order Cost: Rs. 110 / order
Additional Information:
 Holding cost that the company will have to bear is 3% of the purchase price.
 Moreover, supplier A has offered no discount while the supplier B has offered 2% discount if
minimum order size is not less than 8000kg.
Requirements:
Suggest which of the suppliers (A or B) company should choose and for this, you must need to provide the working of following:

1. CalculateEconomicOrderquantity(EOQ)andtotalnumberofordersperyear

2. Calculate total cost and per unit cost if company chooses supplier A. 3. CalculatetotalcostandperunitcostifcompanychoosessupplierB.

3. Calculate total annual saving (or loss) based upon the working of part 2 & 3. Note: Provide complete detailed working for each part.
   Important Instructions:
    Working of each missing value carries certain marks so, it is necessary to provide detailed working of each value to avoid any inconvenience.
    Before attempting the assignment, it is advised to consult the relevant lectures, recommended book(s) and the additional material. This additional material has also been provided on VULMS in different lessons. You can view these supplements on VULMS under the link of “lessons” along with PPTs.
   Other Important Instructions:
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   Deadline:
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   Dear students!
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