EOQ

ABC Ltd. Requires 20000 units of a product every year for which ordering cost is Rs. 4000
per order, inventory carrying cost IS 20 % per year and unit cost is Rs. 200 per unit, find
EOQ and total cost. Also find inter order interval. 
What happens to the cost if company decides to purchase 1000 units per order or 5000
units per order? 

A=20000 units per annum

CP=Rs 4000 per order
I= 20 % per annum
Cu= Rs 200 per Unit

Q = EOQ = ECONOMIC ORDER QUANTITY 

Q = √ [(2 A X CP ) / {Cu X I}] 

ANNUAL INV. COST = (Q  / 2) X Cu  X I 

Cu =  UNIT COST 
I = INVENTORY CARRYING COST 

 
ANNUAL ORDER COST =  A/Q X CP 
A= ANNUAL REQUIREMENT 
CP =  ORDER COST PER ORDER OR PURCHASE COST PER PURCHASE 

Total Cost = Inv. Cost + Order cost

= [{Q/ 2} X Cu X I] + {A /Q X CP} 

INTERORDER INTERVAL = Q /A X 365

=
Total Cost = Inv. Cost + Order cost
= [{Q/ 2} X Cu X I] + {A /Q X CP} ––––––– Company decides to purchase 1000 and 2000 Units

Time Study Numerical

During a time study conducted for 8 hours, the worker had gone
out for lunch for 30 Mins. Also during the study time, there was a
power failure for 1 hour. If 13 units were completed by a worker
having performance rating of 110 %, and management has decided
to give total allowances of 10 %, find Standard Time

Net Total working time= (8-3/2) hrs=13/2hours

Total Work Done= 13 Units
Performance Ratings= 110%
Allowances= 10 %

OBSERVED TIME (OT) = TOTAL WORKING TIME / TOTAL WORK DONE

NORMAL TIME(NT) = OBSERVED TIME (OT) X PERFORMANCE RATING (PR)

STANDARD TIME= NORMAL TIME(NT) + NORMAL TIME(NT) X ALLOWANCES

 Working Sample Sums

During a pilot study, it was observed that 90 machines

out of 100 were working. If the confidence level desired
is 2 sigma and accuracy level desired is + / - 3 %, find
the number of rounds to be taken. If the study is to be
done for 25 days of 8 hours each, find the time for each
round and time between the rounds.

N = C2 (1-P) / A2P 
 
N = No. of observations required to be calculated 
A = Accuracy level desired expressed in terms of error % allowed=3%=0.03
C = Confidence level desired expressed in terms of Sigma=2
P = Activity % = Working obs. Or Idle observation (Whichever is lower) / Total
Obs.=10/100=0.1

N = C2 (1-P) / A2P 

r = no. of rounds = N/ M = 40000 / 100 = 400 ROUNDS 

R = Rounds per day = no. of rounds / no. of days = 400 / 25 = 16 rounds per day. 
Tr = Time between the rounds = time per day / rounds per day = ( 8x 60) / 16 = 30 mins. 
T = time for each round 
1/3 Tr ≤ T ≤ 1 / 2Tr 
=1/3 *30 ≤ T ≤ 1 / 2*30
=10 ≤ T ≤ 15
Hence, time required between the rounds is more than 10 Minutes But, less than 15 Mins.
During a work sampling study following observations were made:
Machine working – 85 observations, No power – 2 Observations, No
worker – 1 observations, No order – 1 Observations, Machine being set
up – 5 Observations, No material - 1 observations, Machine being
cleaned – 5 Observations.
The study was conducted for 10 days of 8 hours each and during this
time 480 units were produced by working group having performance
rating of 90 % and management has decided to give allowances of 10%,
calculate the standard time.

Nm = machine observations = 85 
Nh = hand observations or manual observations = 5 +5 =10 
Ni = Idle Observations = 2 + 1+ 1+ 1= 5 
Np = productive observations = Nm + Nh = 95 
N = total No. of observations = Np + Ni = 100 
t = time per unit = total study time / total work done = 10 x 8 x 60 /480 = 10 mins. 
tp = productive time = t x Np/ N = 10 x 95 / 100 = 9.5 mins. 
ti = idle time = t X Ni / N = 10 x 5/100 = 0.5 mins. 
th = manual time = tp x Nh / Np = 9.5 x 10 / 95 = 1 min. 
tm = Machine time = tp x Nm / Np = 9.5 x 85 / 95 = 8.5 mins. 
N. T. = NORMAL TIME = tm + th x P. R. = 8.5 + 1 X 0.9 = 9.4 MINS. 
S. T. = STANDARD TIME = N. T. + N.T X ALLOWANCES = 9.4 + 9.4 X 10/100 = 10.34 MINS.