Question

From the following information, calculate the extra cost of material by following EOQ:
Annual consumption:
=45000 units
Ordering cost per order:
= Rs. 10
Carrying cost per unit per annum: = Rs. 10
Purchase price per unit
= Rs. 50
Re-order quantity at present = 45000 units
There is discount of 10% per unit in case of purchase of 45000 units in bulk.​

Answer 1

Given:

Annual consumption = 45000 units

Ordering cost per order: = Rs. 10

Carrying cost per unit per annum = Rs. 10

Purchase price per unit  = Rs. 50

To Find:

EOQ

Solution

Annual Cost under EOQ -

Annual Carrying Cost = 45000/300×10 = Rs. 1500

Thus, total cost under EOQ will be Rs. 3000.

Annual Cost as per the current plan -  

Annual ordering cost = Rs.10

Annual Carrying cost = 45000/2 × 10

= Rs. 225000

Saving due to bulk order

= 45000 × ( 50 × 10/100 )

= Rs.225000

Effective cost = Rs.10

Answer: The extra cost will be Rs.3000 - 10 = Rs.2,990