Question

Find out the EOQ and the number of orders per year from the
following information:
Monthly consumption 3,000 units
Cost per unit Rs. 54
Ordering cost Rs. 150 per order
Inventory carrying cost 20% of the average inventory

Answer 1

Given:

Monthly consumption 3,000 units

Cost per unit Rs. 54

Ordering cost Rs. 150 per order

Inventory carrying cost 20% of the average inventory

To Find:

• EOQ
• The number of orders per year

Solution:

• Economic order quantity refers to the quantity ordered over time.
• The Formula for EOQ is

$eoq \: = \sqrt{2ao \div c}$

where,

A = Monthly consumption = 3000 units

O= Ordering cost = 150 per order

C = Carrying cost = 54 × 20% = 10.8

$eoq \: = \sqrt{2 \times 3000 \times 150 \div 10.8}$

EOQ = 87.84 or 88

• The number of orders per year = 3000×12/88

= 409 orders

Thus, the number of orders per year will be 409 orders