Correct Answer - Option 4 : 388 units
Concept:
Basic EOQ Model:
The objective of this model is to minimize total annual cost by means of controlling inventory levels.
It is a best-ordered quantity where the total annual cost is minimum.
In Basic EOQ model,
Annual carrying(Holding) cost = Annual ordering cost
∴ to minimize total cost, EOQ(Q) is given by,
\(Q = \sqrt {\frac{{2D{C_0}}}{{{C_c}}}} \), where D= Annual demand, C0= Ordering cost per order, Cc= Carrying cost per unit per year, Cu= per unit material cost.
Calculation:
Given:
D = 500 × 12 = 6000 units per year, Cu= Rs. 25 per unit, Cc= 16% of Cc= 0.16 × 25= Rs. 4 per unit per year,
C0= Rs. 50 per order, Q = ?
Now, we know that
\(Q = \sqrt {\frac{{2D{C_0}}}{{{C_c}}}} \)
∴ \(Q = \sqrt {\frac{{2 \times 6000 \times 50}}{4}} = 388\;units\)
Therefore the Re-order quantity is 388 units.