Final answer:
To improve inventory management policies for its supply of automobile paints, Deepa Paints should calculate the Economic Order Quantity (EOQ) and use it to determine how much paint should be ordered each time, how often paint should be ordered, the time between two consecutive orders, and the total annual cost associated with this policy.
Step-by-step explanation:
To determine the optimal inventory management policies for Deepa Paints' supply of automobile paints, we need to calculate the Economic Order Quantity (EOQ). EOQ is calculated using the formula:
EOQ = sqrt((2 * Annual Demand * Order Cost)/Carrying Cost per Unit).
- To find the quantity of paint that should be ordered each time, we can substitute the values into the formula. Annual Demand = Annual usage (constant rate) = Annual Demand, Order Cost = Rs. 80, Carrying Cost per Unit = Rs. 20 * 15% = Rs. 3.
EOQ = sqrt((2 * Annual Demand * Order Cost)/Carrying Cost per Unit) = sqrt((2 * Annual Demand * 80)/3) - Next, to determine how often paint should be ordered, we can divide the annual demand by the EOQ calculated in step 1. This will give us the number of orders per year.
- The time between two consecutive orders can be calculated by dividing the number of working days in a year by the number of orders per year.
- The total annual cost associated with this policy can be calculated by summing the annual carrying costs and annual ordering costs. Annual carrying costs = Annual Demand * Carrying Cost per unit, and Annual ordering costs = Number of Orders per year * Order Cost.