Calculate the Economic Order Quantity from the following information: Annual Consumption 120 units, Cost of placing and receiving an order Rs. 20, Price per unit Rs. 100, Storage cost as a percentage of average inventory 12%.

Question

Accepted Answer

Given: Annual consumption (D) = 120 units, Cost of placing and receiving an order (P) = ₹20, Price per unit = ₹100, Storage cost = 12% of average inventory.

First, calculate the inventory carrying cost per unit per year (C):
C = 12% of price per unit = 12% × ₹100 = ₹12.

EOQ = √((2 × P × D) / C)
EOQ = √((2 × 20 × 120) / 12)
EOQ = √(4,800 / 12)
EOQ = √400
EOQ = 20 units.

The Economic Order Quantity is 20 units.