Question

ABC Ltd. uses EOQ logic to determine the order quantity for its various components and is planning its orders. The Annual consumption is 80,000 units, Cost to place one order is Rs. 1,200, Cost per unit is Rs. 50 and carrying cost is 6% of Unit cost. Find EOQ, No. of order per year, Ordering Cost and Carrying Cost and Total Cost of Inventory.

Answer 1

Answer:

Explanation:

SOLUTION-  

Economic Order Quantity=?

Annual consumption(A)= 80000 units.

ordering cost (B)= 1200/- per order

Carrying cost(C)= 3/- per unit

Economic Batch Quantity= 2AB

C

=  2X80000X1200  

3

=8000 UNITS

Total Cost of Inventory=  

Annual consumption(A)= 80000 units.X50

=40,00,000/-

ordering cost(B )= 1200/- per order

=1000 ORDERS X 1200

=1200000/-

Carring cost(C)= 3/- per unit P.A.

=80000 X 3

=240000/-

TOTAL COST= 4000000+1200000+240000

=54,40,000/-

Answer 2

Answer:

EOQ will be 8000 units, Ordering cost will be 1200 per order, and carrying cost will be Rs. 3 per unit and the Total Cost of Inventory will be Rs. 54,40,000/-

Explanation:

STEP 1 :

we know that,

EOQ = $\sqrt[n]AO/C$

given,

• Annual consumption is 80,000 units
• Cost to place one order is Rs. 1,200
• The cost per unit is Rs. 50
• The carrying cost will be 3 per unit.

if we apply the EOQ Formula we will easily get it

=  $\sqrt[n]2X80000X1200/3$

= 8000 units.

STEP 2 :

We have to find out the Total Cost of the Inventory

• Annual Consumption

= 80,000 units * 50

=40,00,000/-

• Ordering cost

= 1200/- per order

=1000 * 1200

= 12,00,000 Orders

• Carrying cost = Rs. 3 per unit

=80000 * 3

=240,000

Hence,

Total cost= Annual consupmtion + ordering cost + carrying cost

= 40,00,000 + 12,00,000 + 240,000

= 54,40,000/-

Therefore, the Total cost of inventory is Rs. 54,40,000/-

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