Question

The annual demand for an item is 3000 units. Capital cost is Rs. 7 per unit. Inventory carrying cost is 20% of capital cost per annum. If set up cost is Rs. 150, determine 

1. EOQ 

2. Number of orders per year 

3. Optimal cost

Answer 1

Given R = 3000, p = 7,1 = 20% c₃ = 150.

 (Shortages are not given use EOQ model 1)

1. EOQ : Q° = \( \sqrt\frac{2C_3R}{C_1}\)

C₁ = p₁ = 7 × \(\frac{20}{100}\) 

Q° = \( \sqrt\frac{2\times 150 \times 300}{1.4}\)

2. n° =\(\frac{2R}{Q°}\) = \(\frac{300}{801.78}\) = 3.4 orders

3. C(Q°) = \( \sqrt{2\times 150 \times 300\times1.4}\)

= Rs. 1122.50