MATERIALS – ECONOMIC ORDER QUANTITY [EOQ]

Find out the economic order quantity and the number of

orders per year from the following information and Total
Inventory cost:
Monthly consumption 3000 units
Cost per units Rs. 54
Ordering cost Rs. 150 per order
Inventory carrying cost 20% of the average inventory.
Economic order quantity [EOQ] = √ 2CSAB
A= Annual usage of Material 3000 x 12 = 36000 units
B= Buying cost per order Rs. 150
C= Cost per unit Rs. 54
S = Storage and carrying cost % p.a. 20%

Economic order quantity [EOQ] = √ 2 x5436000 x 150

x 20 %

= √ 10800000
10.8

= √ 1000000
EOQ = 1000 units
Number of orders per year = Annual consumpution
EOQ

= 36000
1000

= 36 orders
Frequency of orders = No . of orders per annum
Days∨Months∈the year

= 365
36 = 10.13

= 10 Days
Calculation of Total Inventory cost
Particulars Rs.
Purchase cost = [36000 x 54] 1944000
Carrying cost = [1000 x1/2 x 54 x 20%] 5400
Ordering cost 36 order @ Rs.150 per order 5400
[36 x 150]
Total Inventory Cost 1954800