Question

Sun Pharma Ltd. has an annual demand of 4000 units for one of its medicines. For this the production company has to bear setting up and order processing cost of Rs. 900. The cost of manufacturing is Rs. 800 per unit. The cost of carrying is 10% p.a. Based on this data, compute the Economic Batch Quantity.

Hint:

$$\text{At EBQ, Total Setup Costs} = \text{Total Carrying Costs}$$ You can double-check this: $$\text{Number of Batches} = \frac{4000}{300} = 13.33 \implies \text{Total Setup Cost} = 13.33 \times 900 = \text{Rs. } 12,000$$ $$\text{Average Inventory} = \frac{300}{2} = 150 \text{ units} \implies \text{Total Carrying Cost} = 150 \times 80 = \text{Rs. } 12,000$$ Because both costs are equal, the solution of 300 units is mathematically verified.

Answer 1