EOQ Question:

A Pakistan Electric Company makes Transistors. It produces 450 Transformers a month. It buys the
two maintenance kits that it ships with each Transistors produced from a supplier at a cost of PKR
200 per Transformers. The company’s inventory carrying cost is estimated to be 15% of cost and the
ordering is PKR 500 per order.

Demand per year = (2 M. Kits) * (450 Trans per Month) * (12 Months) = 10800 kits

Ordering Cost = 500 PKR

Cost per units = 200 PKR

Holding Cost = 15 % (cost per units) = 30 PKR

a. EOQ = √2*10800*500/30 = 600 Kits

b. Number of orders = D/EOQ = 10800/600 = 18 orders / year

c. Average annual ordering cost = S * D/EOQ or Number of order * Cost per order =18*500 =
9000 PKR/year

d. Average inventory = Q/2 (Q is the EOQ, I mean how much we place order each times). So,
600/2= 300 kits

e. Average annual carrying cost = H (Q/2) or average inventory * Holding cost, 300 * 30 = 9000
PKR/year

f. Total cost = Average ordering cost + Average annual carrying cost, 9000 + 9000 = 18000
PKR/year