# A Factory requires 2000 units for an item per year. Purchase cost is Rs. 30, the setup cost is Rs. 200.

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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.

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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 –