Question

the annual carrying cost of material X is ₹3.6 per unit and it's total carrying cost is ₹9000 per annum. what would be the economic order quantity for material X, if there is no safety stock of material X ?​

Answer 1

Explanation:

Carrying Cost p.u. = Rs. 3.60

Total carrying Cost = 1/2 x EOQ x Carrying Cost P.u. 9000 = 1/2 x EOQ x 3.6 EOQ = 9000 x 2/3.6 = 5000

Economic Order Quantity = 5000 units

Answer 2

It is the number of units of inventory in one time as a order to be placed by the entrepreneur so that the cost will be minimum. the significant cost includes the cost of ordering the inventory and the rent paid to store it.

here,

as the order will be more in a year the ordering cost get higher but carrying cost gets low , on the other hand when order get low the carrying cost get higher , there is inverse relationship between the two.

Annual demand of inventory = 9000units

Carrying cost for inventory   = ₹3.6

Cost of ordering in one time = ₹50 (assumed)

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

       = $\sqrt{2*9000*50/3.6}$

       = ₹500