Question

Price per unit 150, annual consumption 2,000 units, ordering cost * 300 per order and other
charges 20% of cost. What should be the quantity of each order?
(a) 150 units
(b) 200 units
(c) 225 units
(d) None of the above​

Answer 1

Average inventory per year, each time we order Q is Q divided by 2. H is inventory carrying cost for one unit per year; therefore, for one unit per year we have H cost if we are carrying 2 units per year, then our carrying cost is H times Q divided by 2. If Q goes up, annual carrying cost goes up.

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Answer 2

Answer:

The correct answer is option (b) 200

Explanation:

Given:

• Price per unit = Rs 150
• Annual consumption = 2,000 units
• Ordering cost = Rs 300 per order
• Other charges = 20 % of price per unit

                                 = 20% of Rs 150

                                  = 30

Formula:

$Quantity of each order = \sqrt{\frac{2 * AR *OC}{cc} }$  .........................(1)

Where,

• AR = Annual consumption
• OC = Cost of placing one order
• cc = Interest cost payment per unit per year

Solution:

Substitute the values in equation (1) we get,

$Quantity of each order = \sqrt{\frac{2 * 2000 *300}{30} }\\\\= \sqrt{40000} \\\\= 200 Units$

Therefore, the quantity of each order (EOQ) is 200 units.

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