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    Solved Problems On EOQ

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    cnagadeepa
    The document provides examples of calculating economic order quantity (EOQ) using the formula EOQ=√2AB/CxS, where: A is annual usage, B is cost per order, C is cost per unit, and S is storage cost. In 6 examples, values for a company's annual/quarterly demand, ordering costs, unit costs, and storage costs are given to calculate the optimal order quantity that minimizes total inventory costs.

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    Solved Problems On EOQ

    Uploaded by

    cnagadeepa
    47K views5 pages
    The document provides examples of calculating economic order quantity (EOQ) using the formula EOQ=√2AB/CxS, where: A is annual usage, B is cost per order, C is cost per unit, and S is storage cost. In 6 examples, values for a company's annual/quarterly demand, ordering costs, unit costs, and storage costs are given to calculate the optimal order quantity that minimizes total inventory costs.

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    Solved problems on EOQ Dr. C Nagadeepa

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    Solved problems on EOQ

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    The document provides examples of calculating economic order quantity (EOQ) using the formula EOQ=√2AB/CxS, where: A is annual usage, B is cost per order, C is cost per unit, and S is storage cost. In 6 examples, values for a company's annual/quarterly demand, ordering costs, unit costs, and storage costs are given to calculate the optimal order quantity that minimizes total inventory costs.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    47K views5 pages

    Solved Problems On EOQ

    Uploaded by

    cnagadeepa
    The document provides examples of calculating economic order quantity (EOQ) using the formula EOQ=√2AB/CxS, where: A is annual usage, B is cost per order, C is cost per unit, and S is storage cost. In 6 examples, values for a company's annual/quarterly demand, ordering costs, unit costs, and storage costs are given to calculate the optimal order quantity that minimizes total inventory costs.

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    © All Rights Reserved
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    The key takeaways are the concepts of economic order quantity (EOQ), which aims to minimize total inventory costs by balancing ordering and carrying costs, and reorder level, which indicates when to place a new order.

    The economic order quantity is calculated using the formula: EOQ = √(2AB/C), where A is the annual usage or demand, B is the ordering cost per order, and C is the cost per unit.

    When calculating the EOQ, the factors considered are the annual usage/demand, ordering cost per order, cost per unit, and storage and carrying costs (if given as a percentage). Storage and carrying costs are applied on the cost of materials.

    Problems on Economic Ordering Quantity

    1. Calculate the economic order quantity for material M. The following details are furnished:
    Annual usage = 90000 units
    Buying cost per order = Rs. 10
    Cost of carrying inventory = 10% of cost
    Cost per unit = Rs.50

    EoQ=❑√ 2 A B/C x S

    A = Annual Consumption

    B = Buying cost per order

    C = Cost per unit

    S = Storage and carrying cost (if it is given in % apply on cost of the material)

    EoQ = ❑√ 2 x 90,000 units x 10/(50 x 10 %) = ❑√ 18,00,000/ 5

    =❑√ 3,60,000 = 600 units

    2) From the following information, calculate Economic Order Quantity and the number of orders
    to be placed in one quarter of the year.

    (a) Quarterly consumption of materials = 2000 kg


    (b) Cost of placing one order = Rs. 50
    (c) Cost per unit = Rs. 40

    (d) Storage and carrying cost = 8% of average inventory

    EoQ=❑√ 2 A B/C x S

    A = Annual Consumption ( 2000 for quarterly and for annual = 2000x 4 = 8000)

    B = Buying cost per order

    C = Cost per unit


    S = Storage and carrying cost (if it is given in % apply on cost of the material)

    EoQ = ❑√ 2 x 8,000 x 50/(40 x 8 % ) = ❑√ 8,00,000/3.2 = 500 kgs

    Number of orders to be placed in one quarter = Material consumption per quarter / EoQ per order

    = 2000 kgs / 500

    = 4 orders
    3. Following information relating to a type of raw material is available:

    Annual demand 2400 units

    Unit Price Rs. 2.40 - C

    Ordering cost per order Rs. 4.00 - B

    Storage cost 2% per annum

    Interest rate 10% per annum

    Calculate Economic Order Quantity.

    EoQ=❑√ 2 A B/C x S

    A = Annual Consumption

    B = Buying cost per order

    C = Cost per unit

    S = Storage and carrying cost (if it is given in % apply on cost of the material)

    Interest rate is not considered and treated as non-storage cost

    EoQ = ❑√ 2 x 2400 x 4 /(2.40 x 2% ) = ❑√ 19200/0.048 = 632 units

    Note: Interest payment is considered as storage cost and in the storage and carrying cost and the loan is
    taken for the purpose of capital expenditure on storage.

    EoQ = ❑√ 2 x 2400 x 4 /(2.40 x 12% ) = ❑√ 19200/0.288 = 258 units


    4. A Company manufactured 5000 units of a product per month. Cost of placing an order is Rs.
    100. The purchase price of raw material is Rs. 10 per kg. The re-order period is 4 to 8 weeks.
    The consumption of raw materials varies from 100 kg to 450 kg per week, the average
    consumption being 275 kg; the carrying cost of inventory is 20% per annum. Calculate (a) Re-
    order Quantity & (b) Re-order level.

    EoQ=❑√ 2 A B/C x S

    A = Normal consumption of material per week x 52 = 275 per week x 52 weeks

    A= 14,300 units of materials

    B = 100

    C = 10 per unit

    S = 20%

    a. Re-order quantity or EoQ = ❑√ 2 x 14,300 x 100/(10 x 20 %) = ❑√ 2860000/2 = 1,196 units


    b. Re-order Level = Max consumption x maximum re-order period
    = 450 x 8
    = 3,600 units.

    5. A Company uses 2500 units of a material per month. Cost of placing an order is Rs. 150. The
    cost per unit is Rs. 20. The re-order period is 4 to 8 weeks. The minimum consumption of raw
    material is 100 units whereas the average consumption is 275 units. The carrying cost of
    inventory is 20% per annum. Calculate (a) Re-order Quantity & (b) Re-order level.

    A = 2500 x 12 (as it is given clearly, that’s why did not take the average consumption)

    = 30,000

    B = 150

    C = 20

    S = 20%
    a. Re-order quantity or EoQ = ❑√ 2 x 30000 x 150/(20 x 20 %) = ❑√ 90,00,000/4 = 1,500 units
    b. Re-order Level = Max consumption x Max ordering period

    = 450 x 8 weeks

    = 3,600 units.

    Average consumption =( Min consumption + max consumption) / 2

    275 = (100 + Max cons) /2

    275 x 2 = 100 + max consumption = 450 units.

    6. XY Co. requires 1500 units of a material per month, each costing Rs. 27. Cost per order is Rs.
    150 and the inventory carrying charges work out to 20% of the average inventory. Find out the
    economic order quantity and the number of orders per year.

    A = 1500 x 12 = 18,000 units


    B = 150
    C = 27
    S = 20%

    EoQ = ❑√ 2 x 18,000 x 150/(27 x 20 %) = ❑√ 54,00,000/5.4 = 1,000 units

    No of orders per year = No of units required per year / eoq

    = 18,000 / 1000 = 18 orders per year

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