Question

The annual demand of a product is 10,000 units. Each unit
costs Rs. 100 if orders placed in quantities above 200 units
but for orders 200 or more the price is Rs. 95. The annual
inventory holding cost is 10% of the value of item and
ordering cost is Rs. 5 per order. Find economic lot size.​

Answer 1

$EOQ= \sqrt{2AO/C\\}=\sqrt{2*10000*95*5/10+95*10000} \\=Rs 950974.7$Answer:

The economic lot size is 200 units

Explanation:

The optimal number of units to buy to satisfy demand while reducing inventory expenses including holding costs, shortfall costs, and order costs is known as the economic order quantity (EOQ). The EOQ formula works best when demand, ordering, and holding costs don't fluctuate over time.

The assumption that the demand for the company's products would remain constant over time is one of the key limits of the economic order quantity. The ideal quantity of a product to order may be determined using the EOQ formula.

Demand D=10,000 units

Unit cost =Rs.100 (orders below 200 units)

Unit cost =Rs.95 (orders of 200 and above)

Inventory holding costs=10% of Cost of each order

Cost of each order=Rs.5

• Case 1:

Finding EOQ (i.e. Q*) when Cp = Rs. 100

$EOQ= \sqrt{2AO/C\\}=\sqrt{2*10000*5/10} \\=100 units$

Minimum Cost $=\sqrt{2AO/C + EOQ*Demand\\}=Rs 10,01,000$

• Case 2:

Cp = Rs. 95 and Q = 200 un

$=\sqrt{2AO/C + EOQ*Demand\\}\\= \sqrt{2*10000*95*5/10 + 95*10000}\\=Rs 9,50,974.7$

So the economic lot size should be 200 units, and (10,000÷200) 50 orders need to be placed each year.

For more information on EOQ, https://brainly.in/question/10027820

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