Question

Hunza Limited purchases and sells a single product. The company has a
constant saftey stock level and is exepcted to continue the same. The company
orders stock using EOQ policy. Details pertaining to the sales and cost struture are
as under:

Data for the year 2020

Demand (Units) 1,012,500
Annual Total Holding Cost (Rs) 315,500
Safety Stock (units) 4,000
Holding Cost per unit / Year (Rs) 23.00

Annual total holding cost includes holding cost of safety stock and store
keeper salary of Rs 120,000 per anum

Expectation for 2021

Demand to increase by 40%
Ordering Cost to increase by 20%
Holding cost to reduce by 10%
Units of safety stock shall be unchanged

Required
Calculate EOQ for both years

Solution
Annual total holding cost 315,500
Store keeper salary (120,000)
Holding cost of safety stock (92,000)
Relevant Holding Cost 103,500

At EOQ = ARHC = AROC

Annual Relevant Holding Cost 103,500

Annual Relevant Ordering Cost 103,500
Total Annual relevant Cost 207,000
We know that ARC = (2xDxOCxHC)^2
Here Ordering Cost per order is not given in the question
so we can calculate that using this function

ATRC 207,000
Demand 1,012,500
HC per unit / yr 23.00
Ordering Cost per order 920.00

EOQ for both years

2020 2021
Demand 1,012,500 1,417,500
HC / unit / yr 23.00 20.70
OC / order 920.00 1,104
EOQ 9,000 12,296