2. The annual demand for an item is 32000 units. The unit cost is Rs. 6 and inventory carrying
charges 25% per annum. If the cost of one procurement is Rs. 150 and no shortages are
allowed, then find the number of orders per year and the minimum total inventory cost
Answers
Answer:
EOQ (Economic Order Quantity) = 800 units
No of orders per year = 4 orders per year
Time between two consecutive order = 3 months
Explanation:
Given :
• Annual demand (D) = 3,200 units
• Cost of one order (S) = Rs. 150
• Cost per unit (C) = Rs. 6
• Holding Cost in % (I) = 25%
• Holding Cost in Rs. (H) = I × C
To find :
• Calculate EOQ (Economic Order Quantity) = Q
• No of orders per year
• Time between two consecutive order
Solution :
Holding Cost (H) = I × C
\longrightarrow{\sf{6 \times \dfrac{25}{100}}}⟶6×10025
\longrightarrow \: 1.5⟶ 1.5
Holding Cost (H) = 1.5
★ EOQ :
\sf{\longrightarrow{Q={\sqrt{ \dfrac{2SD}{H}}}}}⟶Q=H2SD
\sf{\longrightarrow{Q={\sqrt{ \dfrac{2 \: \times \: 150 \: \times \: 3,200 }{1.5}}}}}⟶Q=1.52×150×3,200
\sf{\longrightarrow{Q={\sqrt{\dfrac{9,60,000}{1.5}}}}}⟶Q=1.59,60,000
\sf{\longrightarrow{Q={\sqrt{6,40,000}}}}⟶Q=6,40,000
\longrightarrow⟶ Q = 800 units
EOQ (Economic Order Quantity) = 800 units
★ No of orders per year :
\sf{\longrightarrow{\dfrac{Annual \: demand }{EOQ}}}⟶EOQAnnualdemand
\sf{\longrightarrow{\dfrac{3200}{800} \: = \: 4}}⟶8003200=4
No of orders per year = 4 orders per year
★ Time between two consecutive order :
\sf{\longrightarrow{\dfrac{EOQ }{Annual \: demand} \times \: Time}}⟶AnnualdemandEOQ×Time
\sf{\longrightarrow{\dfrac{800}{3200} \times \: 12 \: = \: 3}}⟶3200800×12=3
Time between two consecutive order = 3 months
Therefore,
EOQ (Economic Order Quantity) = 800 units
No of orders per year = 4 orders per year
Time between two consecutive order = 3 months
Answer:
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