Blog: Mgt402 Solution

Here is what I think, since we have a bumper cotton crop, we will not increase any other prices except for the ones asked by the question.
That way:

	Per Unit Cost	Annual Required Units	Ordering Cost for One Order	Carrying Costs
Previous Contract	500	12,500	2000	10%
Proposed Contract	500	15,625	2000	12%

Moving on , 
EOQ = [(2xRUxOC)/(UCxCC%)]^1/2

Total Ordering Cost= Required Units/Order Quantity = Number of Orders
= Number of Orders x Cost per Order
Total Carrying Cost = Ordering Quantity/2 = Average Ordering Quantity
=Carry Cost per Unit = Unit Cost x CC%
= Average Ordering Quantity x Carrying Cost Per Unit
Total Cost = Total Ordering Cost x Total Carrying Cost
Per Unit Cost = Total Cost/Order Quantity 

	Order Quantity	Total Ordering Cost	Total Carry Cost	Total Cost	Per Unit Cost
Previous Contract	1000	25000	25000	50000	50
Proposed Contract	1020.6	31250	30618	61868	60.62

Hence Accountant is right.

complete solution available at Virtual University of Pakistan