Question

A Factory requires 2000 units for an item per year. Purchase cost is Rs. 30, the setup cost is Rs. 200. The carrying cost is Rs. 8 per item/year. If the shortage cost is Re. 1 per item/month. Determine 

1. EOQ 

2. Minimum average cost.

Answer 1

Given : R = 2000 ; P = Rs. 30 C₃ = Rs. 200 

C₂ = Re. 1 per item/month. 

i.e„ C₂ =1><12= 12/year. 

C₁ = Rs. 8 per item per year. 

(Here shortage cost is given, so use EOQ model II)

1. Economic order quantity is –

Q° = 408.25 units 

2. Minimum average cost is –