Given:

R = 80 units per month and R = 80 × 12

= 960 units per year.

P = Capital cost = Rs. 800 per unit.

I = Holding cost per unit per year = 12%.

∴ C_{1} = carrying cost per unit = PI = 800 × 12% = Rs. 96 per year.

C_{3} = Set up cost = Rs. 300 per order

Economic order quantity :

∴ Q° = 77.46 = 77 order.

Reorder time is t° = \(\frac{Q°}{R} = \frac{77.46}{960}\)

= 0.0807 years

i.e., t° =0.0897 × 365 = 29 days (approx)

Frequency of order is n° = \(\frac{1}{t°}\)= 12.39 per year

Minimum average cost is

C(Q°) =\(\sqrt{2C_1C_3R}\)

=\(=\sqrt{2 \times96 \times300 \times 960}\)

=7436.13

C(Q°) = Rs. 7436.13 per year