Question

Q4. Suppose a company purchases raw material at a cost of Rs. 16 per unit. The annual demand is 2500 units. The carrying cost per unit is Rs. 6.40 and the cost of placing order is Rs. 32. Calculate economic order quantity.​

Answer 1

EOQ = Economic Order Quantity,

RU = Annual Required Units,

OC    = Ordering Cost for one Unit

UC = Inventory Unit Cost,

CC = Carrying Cost as %age of Unit Cost

in this question given data is

RU = Annual Required Units=2500

OC    = Ordering Cost for one Unit=32

UC = Inventory Unit Cost=16

CC = Carrying Cost =6.40

now apply formula

EQQ=$\sqrt{2 xRU *OC/UC *CC}$

EQQ=$\sqrt{2*2500*32/16*6.40}$

EQQ=$\sqrt{1562.5}$

EQQ=39.52 units hence it is approximately

       = 40 unit is the right answer

Answer 2

158 units will be the economic order quantity

Explanation:

Economic order quantity is the number of units should be placed at one time, so that the cost will be minimum, the number of orders should be placed in a year so that the ordering and carrying cost will be minimum.

here,

annual demand= 2500 units

carrying cost= ₹6.40

cost of ordering= ₹32

EOQ = $\sqrt{2AO/C}$

        = $\sqrt{2*2500*32/6.40}$

         = $\sqrt{25000}$

         = 158.113 Units

       or = 158 units