Question

A company requires 16,000 units of raw material costing Rs 2 per unit. The cost of placing an order is Rs 100 and the carrying costs are 10% per year per unit of the average inventory. The Economic Order Quantity (EOQ) is:

• A. 4000 units.
• B. 4040 units.
• C. 4004 units.
• D. 4400 units.

Hint:

The EOQ formula helps determine the optimal order quantity that minimizes total inventory costs, including ordering and holding costs.

Answer 1

The Correct Option is C

Step 1: Apply the EOQ Formula.
The Economic Order Quantity (EOQ) is calculated using the formula: \[ EOQ = \sqrt{\frac{2DS}{H}} \] Where:
- \( D \) represents the annual demand (16,000 units),
- \( S \) represents the ordering cost per order (Rs 100),
- \( H \) represents the holding cost per unit per year (10\% of the unit cost, calculated as \( 0.1 \times 2 = 0.2 \)). Step 2: Compute the EOQ. Substitute the provided values into the EOQ formula: \[ EOQ = \sqrt{\frac{2 \times 16000 \times 100}{0.2}} = \sqrt{\frac{3200000}{0.2}} = \sqrt{16000000} = 4004 \, \text{units} \] Final Answer: \[ \boxed{4004 \, \text{units}}\ \]