Question

suppose that the cost of holding one item in inventory is Rs. 0.50 and that of placing an order is Rs. 100. Also assume that the annual demand for the item is 4,900 units. Find the economic order quantity.

Answer 1

Given:

The cost of holding one item in inventory is Rs. 0.50

The cost of placing an order = Rs. 100

The annual demand for an item = 4900 units

To find:

The economic order quantity

Solution:

To solve the above-given problem we will use the following formula to find the Economic Order Quantity:

$\boxed{\bold{EOQ = \sqrt{\frac{2DS}{H} } }}$

Where:  

D = the annual demand per unit  

S = the ordering cost per purchase order  

H = the holding cost per unit

We will now substitute the given values of D = 4900, S = 100 & H = 0.5 in the formula above,

$EOQ = \sqrt{\frac{2DS}{H} }$

$\implies EOQ = \sqrt{\frac{2\:\times\: 4900\:\times\: 100}{0.5} }$

$\implies EOQ = \sqrt{\frac{980000}{0.5} }$

$\implies EOQ = \sqrt{1960000 }$

$\implies \bold{EOQ = 1400\:units}$

Thus, the economic order quantity is $\underline{\underline{1400\:units}}.$

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