Question

SS company manufacturing electronic equipment purchase transistors @30 per unit the annual requirement of transistors is 5000 units. The ordering cost is 200 per order. Carrying cost is 4/- per unit, lead time is 5 days. Calculate EOQ and reorder point.​

Answer 1

EOQ is 707.10

Explanation:

Economic order quantity (EOQ) is the optimal order quantity that a business can purchase to reduce inventory costs such as cost keeping, cost shortage, and cost of ordering.

Economic Ordering Quantity = SQRT ((2 X Annual usage X Order cost) / (Holding cost))

In the above problem,  

• Annual Usage = 5000 Units
• Order Cost = 200 Per Order
• Holding Cost = 4 Per Unit  
• Economic Ordering Quantity = SQRT ((2 X Annual usage X Order cost) / (Holding cost per unit))
• Economic Ordering Quantity = SQRT (2 X5000 X200 / (4))
• Economic Ordering Quantity = SQRT (500000)
• Economic Ordering Quantity = 707.10