A company is engaged in manufacturing two products X and Y. Product X uses one unit of component P and two units of component Q. Product Y uses two units of component P, one unit of component Q and two units of component R. Component R which is assembled in the factory uses one unit of component Q.
Components P and Q are purchased from the market. The company has prepared the following forecast of sales and inventory for the next year:
|
|
Product X |
Product Y |
|
Sales (in units) |
80,000 |
1,50,000 |
|
At the end of the year |
10,000 |
20,000 |
|
At the beginning of the year |
30,000 |
50,000 |
The production of both the products and the assembling of the component R will be spread out uniformly throughout the year. The company at present orders its inventory of P and Q in quantities equivalent to 3 months’ production. The company has compiled the following data related to two components:
|
|
P |
Q |
|
Price per unit (Rs.) |
20 |
8 |
|
Order Placing Cost per order (Rs.) |
1,500 |
1,500 |
|
Carrying Cost per annum |
20% |
20% |
Required:
- Prepare a Budget of production and requirements of components during next year.
- Suggest the optimal order quantity of components P and Q.